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Title: Political Corruption and Accounting Choices
Citation Type: Miscellaneous
Publication Year: 2018
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Abstract: We examine how political corruption affects firms’ accounting choices. We hypothesize and find that firms headquartered in corrupt states manipulate earnings downwards, relative to firms headquartered elsewhere. Our findings are robust to alternative corruption measures, restatement-based earnings management measures, the instrumental variable approach and the difference-in-differences analysis. Consistent with the motive to depress earnings, we find that firms headquartered in more corrupt states are more likely to choose the accelerated depreciation method, report higher LIFO reserve and depreciation reserve, and have a lower depreciable life estimate. Finally, we find that the effect of corruption on earnings management is more pronounced for firms whose operations concentrate in their headquarter states and for firms without political connections. In sum, our findings suggest that firms respond to corruption by lowering their accounting earnings.
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Authors: Zhang, Huai; Zhang, Jin
Publisher: Nanyang Technological University
Data Collections: IPUMS CPS
Topics: Housing and Segregation, Other
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