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

See all articles by Beatriz Santos-Cabalgante

Beatriz Santos-Cabalgante

Universidad Autónoma de Madrid

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration; European Corporate Governance Institute (ECGI)

Domi Romero

Universidad Autónoma de Madrid

Date Written: January 7, 2021

Abstract

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

Santos-Cabalgante, Beatriz and Garcia Osma, Beatriz and Romero, Domi, Till Concessionary Reversals Do Us Part: Earnings Management and the Accounting for Public Aids in Early Railway Companies (January 7, 2021). Available at SSRN: https://ssrn.com/abstract=3625181 or http://dx.doi.org/10.2139/ssrn.3625181

Beatriz Santos-Cabalgante (Contact Author)

Universidad Autónoma de Madrid ( email )

Campus Cantoblanco
Ctra. Colmenar, Km. 15
Madrid, Madrid 28049
Spain

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Domi Romero

Universidad Autónoma de Madrid ( email )

Campus Cantoblanco
C/Kelsen, 1
Madrid, Madrid 28049
Spain

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
36
Abstract Views
696
PlumX Metrics