The Effects of the UEFA Financial Fair Play Regulation on Earnings Management in the European Football Industry

50 Pages Posted: 19 Jun 2013

See all articles by Marcus Brooks

Marcus Brooks

University of Nevada, Reno - Department of Accounting and Information Systems; University of Texas at San Antonio - Department of Accounting

Date Written: November 30, 2012

Abstract

The purpose of this study is to examine various factors effecting earnings management behavior in the European football industry from 2006 to 2012. Empirical studies have documented the association between football clubs’ financial difficulties and player salaries, but none have empirically examined the association between player salaries and club’s earnings management behavior. In response to the increased financial instability of football clubs in Europe, the passage of the UEFA Financial Fair Play regulation in 2009 was intended to increase financial discipline and responsibility amongst football clubs. However, the findings from this study document that clubs with higher payrolls and those actively attempting to be in compliance with the Financial Fair Play regulation engage in more opportunistic earnings management behavior, thereby reducing the reliability of the club’s published financial statements. Additionally, this study examines the role corporate governance and audit quality plays in mitigating these aggressive earnings management behaviors, and finds, consistent with prior literature, stronger corporate governance and audit quality characteristics are negatively associated with forms of earnings management. Overall, the findings from this study reveal the possible adverse effects stemming from newly enacted financial regulations, and document the importance of sound fiscal policies to protect the interests of various shareholders and stakeholders.

Keywords: regulation, earnings management, corporate governance, audit quality

Suggested Citation

Brooks, Marcus, The Effects of the UEFA Financial Fair Play Regulation on Earnings Management in the European Football Industry (November 30, 2012). Available at SSRN: https://ssrn.com/abstract=2280661 or http://dx.doi.org/10.2139/ssrn.2280661

Marcus Brooks (Contact Author)

University of Nevada, Reno - Department of Accounting and Information Systems ( email )

United States

University of Texas at San Antonio - Department of Accounting ( email )

One UTSA Circle
San Antonio, TX 78249
United States

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