Earnings Management During Antidumping Investigations in Europe: Sample-Wide and Cross-Sectional Evidence

Posted: 15 Sep 2017

See all articles by David Godsell

David Godsell

University of Illinois at Urbana-Champaign

Michael Welker

Queen's University - Queen's School of Business

Ning Zhang

Queen's University, Smith School of Business

Date Written: May 1, 2017

Abstract

This paper examines earnings management by EU firms that initiate an antidumping investigation. We first document economically and statistically significant income-decreasing earnings management around the initiation of an antidumping investigation. We show that earnings management increases when accounting data directly affect the magnitude of the tariffs imposed in the trade investigation. We also find that earnings management decreases as the number of petitioning firms increases or as the distance between petitioning firms increases, suggesting free-rider and coordination problems. We find that earnings management increases when the petition is directed at a country that imports more goods from the petitioning firm's home country, suggesting that retaliation threats affect incentives. We document that raising equity or debt financing moderates income-decreasing earnings management, consistent with the idea that sample firms trade off capital market and regulatory considerations. Our results indicate that contemporary research methods can detect accruals-based earnings management in settings in which the incentives for earnings management can be clearly identified.

Keywords: earnings management; trade regulation; antidumping investigations; European Union

JEL Classification: F13; M41; M48

Suggested Citation

Godsell, David and Welker, Michael and Zhang, Ning, Earnings Management During Antidumping Investigations in Europe: Sample-Wide and Cross-Sectional Evidence (May 1, 2017). Journal of Accounting Research, Vol. 55, No. 2, 2017. Available at SSRN: https://ssrn.com/abstract=3036043

David Godsell

University of Illinois at Urbana-Champaign ( email )

Champaign, IL 61820
United States
1.217.300.0844 (Phone)

HOME PAGE: http://https://business.illinois.edu/profile/david-godsell/

Michael Welker (Contact Author)

Queen's University - Queen's School of Business ( email )

Kingston
Ontario, Ontario K7L 3N6
Canada

Ning Zhang

Queen's University, Smith School of Business ( email )

Kingston, Ontario K7L 3N6
Canada

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