Till Concessionary Reversals Do Us Part: Earnings Management and the Accounting for Public Aids in Early Railway Companies
43 Pages Posted: 7 Jul 2020 Last revised: 8 Jan 2021
Date Written: January 7, 2021
We study earnings management rooted in a unique principal-principal agency conflict in historical government contracting. We argue and provide evidence that the organization of the early railway industry as a complex network of 99-year concessionary contracts with heterogeneous reversal dates trapped both the industry and the State into a decades-long conflict. We find that this conflict resulted in aggressive earnings management, maximum dividends, and equity depletion. This suggests the concessionary system created incentives for poor accounting quality. Thus, we identify large negative accounting externalities of government contracting that took decades to come to bear.
Keywords: Agency Theory, Concessionary regime, Dividend policy, Earnings management, Railway accounting, State intervention
JEL Classification: M41, M48, N30
Suggested Citation: Suggested Citation