Political Interference in Financial Reporting in the Financial Industry: Evidence from Spain
38 Pages Posted: 12 Mar 2018 Last revised: 16 Mar 2018
Date Written: March 12, 2018
This paper provides a theoretical background based on legal and political arguments on ‘rights versus public interest’ to explain political interference in accounting. This framework goes beyond the traditional political cost hypothesis. We illustrate it by examining the behavior of the newly elected Spanish Government during the financial crisis, by interfering in bank impairment rules in spite of IFRS being in place. We show how after applying the new rules, the industry impairment trend was completely unrelated with the evolution of delinquency, while linked to Government goals. Thus, they allowed the financial sector bailout and avoided the country rescue. We use a highly political connected entity — Bankia — as a case under study, where the interference might have affected the accounting practices as well. We conclude that non-compliance with the accounting rules to achieve economic aims provides a new angle to analyze political behavior and highlight the potential long-term unintended consequences and implications for the global accounting rules adoption.
Keywords: Financial Sector, Earnings Management, Political Interference, Bankia, Banks Accounting
JEL Classification: M48
Suggested Citation: Suggested Citation