Does European Union Policy Making Explain Accounting Choices? An Empirical Analysis of the Effects of Investigations by the Directorate General for Competition on Accounting Choices
Journal of Management & Governance 18 (3), 2014, p. 717–731.
Posted: 23 Jan 2014 Last revised: 11 Feb 2017
Date Written: January 22, 2014
The hypothesis that political costs caused by the regulatory process impact upon accounting has been tested extensively and has found considerable empirical support. However, most studies use data from the United States. Whether the conclusions carry over to different institutional settings is an open question. This study exploits the fact that, in the European Union, there exists a policy area – competition policy – in which the European Commission can act in a manner significantly less constrained than in most other policy areas, imposing substantial fines on companies found to be in infringement of European competition regulations. Companies investigated by the Commission’s Directorate General for Competition have strong incentives to deflect attention and keep a low profile. It is conjectured that such companies will use income-decreasing accruals in order not to appear to be making unjustified profits. The results confirm this conjecture.
Keywords: political costs, earnings management, antitrust, competition policy
JEL Classification: M40, M41, M48
Suggested Citation: Suggested Citation