U.S. Oil Companies' Earnings Management in Response to Hurricanes Katrina and Rita

Posted: 27 Nov 2007

See all articles by Donal Byard

Donal Byard

City University of New York - Stan Ross Department of Accountancy

Mahmud Hossain

University of Memphis - Fogelman College of Business and Economics

Santanu Mitra

Wayne State University - School of Business Administration

Abstract

This study examines earnings management by U.S.-based oil companies in the period immediately after the impact of hurricanes Katrina and Rita. We show that large petroleum refining firms - but not the smaller crude oil and gas production companies - recorded significant abnormal income-decreasing accruals in the fiscal quarter immediately after the impact of hurricanes Katrina and Rita (Q4 of 2005). In addition, we show that these results are driven by abnormal current accruals. Prior studies show that some firms respond to periods of heightened political scrutiny by recording abnormal income-decreasing accruals (e.g., Cahan, 1992; Han and Wang, 1998). Our results add to this stream of research by examining a political cost-increasing event that occurred after the passage of the Sarbanes-Oxley Act (SOX) of 2002. The results suggest that in the post-SOX period managers continue to engage in income-decreasing earnings management during periods of heightened political cost sensitivity, at least in the case of large petroleum refining firms.

Keywords: Earnings management, oil industry, hurricane Katrina

JEL Classification: M41, M43, G38, L71

Suggested Citation

Byard, Donal and Hossain, Mahmud and Mitra, Santanu, U.S. Oil Companies' Earnings Management in Response to Hurricanes Katrina and Rita. Journal of Accounting and Public Policy, Vol. 26, No. 6, 2007. Available at SSRN: https://ssrn.com/abstract=1032709

Donal Byard

City University of New York - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3187 (Phone)
646-312-3161 (Fax)

Mahmud Hossain (Contact Author)

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

Santanu Mitra

Wayne State University - School of Business Administration ( email )

Detroit, MI 48202
United States
313 577 9908 (Phone)
313 577 2000 (Fax)

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