Earnings Management of Firms Subjected to price Regulation: A Longitudinal and Cross-Sectional Investigation

Posted: 25 Jun 1998  

Stephen Lim

University of Technology, Sydney ; Financial Research Network (FIRN)

Zoltan Matolcsy

University of Technology, Sydney; Financial Research Network (FIRN)

Date Written: April 1996

Abstract

This study operationalises a theoretical model of political costs specific to the establishment of the Prices Justification Tribunal in Australia and its implications for firms targeted in this political action. The aim is to identify and define a rigorous linkage between political actions likely to transfer wealth away from targeted firms, and firms' earnings manipulation. Both cross-sectional and longitudinal approaches are employed to examine the incentives for managers of target firms to manipulate earnings in a way which would be conducive to alleviating their exposure to wealth transfer. The cross-sectional approach examines the hypothesis that firms exposed to high levels of political costs would more likely manage their earnings downwards, as compared to other firms within the same period. The longitudinal approach examines the hypothesis that firms would more likely effect earnings-reducing accruals in periods of intense political costs, as compared to other periods of lesser political exposure. The empirical evidence presented suggests that firms are more likely to effect negative accounting accruals during periods when they are subjected to intense political scrutiny as a means of reducing their exposure to political costs.

JEL Classification: M41, L51

Suggested Citation

Lim, Stephen and Matolcsy, Zoltan, Earnings Management of Firms Subjected to price Regulation: A Longitudinal and Cross-Sectional Investigation (April 1996). Available at SSRN: https://ssrn.com/abstract=2618

Stephen Lim (Contact Author)

University of Technology, Sydney ( email )

School of Accounting,
P O Box 123,
Broadway, New South Wales 2007
Australia
(+61) 2 9514 3588 (Phone)
(+61) 2 9514 3669 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Zoltan Matolcsy

University of Technology, Sydney ( email )

School of Accounting PO Box 123
Sydney 2007, New South Wales
Australia
+61 2 9514-3564 (Phone)
+61 2 9514-3669 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Paper statistics

Abstract Views
682