The Influence of Elections on the Accounting Choices of Governmental Entities
Journal of Accounting Research, Forthcoming
49 Pages Posted: 2 Feb 2011 Last revised: 30 Jan 2012
Date Written: January 29, 2011
This paper investigates whether gubernatorial elections affect state governments’ accounting choices. We identify two accounts, the compensated absence liability account and the unfunded pension liability account, which provide incumbent gubernatorial candidates with flexibility for manipulation. We find that in an election year, the liability associated with compensated absences and unfunded pension liabilities are both systematically lower. We also find that the variation in these employment related liabilities is correlated with proxies for the incumbent’s incentives and ability to manipulate their accounting reports. Jointly these results suggest that state governments manipulate accounting numbers to present a healthier financial picture in an election year.
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