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Political Risk & Earnings Quality: An analysis of political effects on earnings management
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Business Studies.
2019 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

The high level of political risk might enhance the information asymmetry between managers and stakeholders, therefore leading to increased opportunity for earnings management activities, which depress the usefulness of financial information. On the other hand, times of high political uncertainty possibly increase the demand for information among stakeholders, consequently leading to enhanced scrutiny and fewer earnings management activities. By examine 625 firms listed in the United States between 20022016, I make use of a firm-level measurement of political risk to identify the possible impact on earnings quality. I identify that political risk exposure measured on a firm-level is negatively associated with earnings management. Therefore I can conclude that firm-level political risk increases earnings quality. I further show how firm-level political risk better predicts earnings management activities than an aggregated measurement of political risk. Finally, I provide evidence that suggests that accrual-based earnings management is affected by the past level of political risk exposure. Real earnings management activities show no such indications.

Place, publisher, year, edition, pages
2019. , p. 35
Keywords [en]
Political risk, Uncertainty, Earnings quality, Earnings management
National Category
Business Administration
Identifiers
URN: urn:nbn:se:uu:diva-387507OAI: oai:DiVA.org:uu-387507DiVA, id: diva2:1329224
Subject / course
Business Studies
Educational program
Master Programme in Business and Management
Supervisors
Available from: 2019-08-06 Created: 2019-06-24 Last updated: 2019-08-06Bibliographically approved

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CiteExportLink to record
Permanent link

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Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
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Language
  • de-DE
  • en-GB
  • en-US
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  • nn-NO
  • nn-NB
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  • Other locale
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Output format
  • html
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