Institutional and Structural Constraints to Detecting Earnings Management of Firms Subjected to Price Regulation

38 Pages Posted: 9 Sep 1996

See all articles by Stephen Lim

Stephen Lim

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

Date Written: Undated

Abstract

This study examines the political costs of firms upon the establishment of the Prices Surveillance Authority in Australia in 1984. The paper identifies and defines a linkage between political actions likely to transfer wealth away from targeted firms and firms' subsequent earnings management.

The cross-sectional and longitudinal evidence presented in this study does not support the hypothesis that firms are more likely to affect negative accounting accruals during periods when they are subjected to intense political scrutiny as a means of reducing their exposure to political costs.

A further examination of the institutional environment and structural arrangements for price surveillance suggests that while establishing a linkage between political costs and earnings management by firms is a necessary condition, it is not by itself a sufficient condition. Earnings management is but one of several options which can be used to deflect political costs by firm managers.

JEL Classification: M41, M43, H32

Suggested Citation

Lim, Stephen, Institutional and Structural Constraints to Detecting Earnings Management of Firms Subjected to Price Regulation (Undated). Available at SSRN: https://ssrn.com/abstract=15063 or http://dx.doi.org/10.2139/ssrn.15063

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
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Queensland
Australia

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