The Interactive Effect of Covid-19 Pandemic, Political Cost, and Executive Compensation on Earnings Management

Abstract

This study investigates whether the COVID-19 pandemic, government Covid aids and incentive policies, and executive compensation affected the quality of the reported earnings in the leisure and hospitality industry. The pattern of changes in the Discretionary Accrual, DACC, was used as a proxy for the quality of reported earnings. It was examined whether this pattern changed during COVID-19 and was affected by government aid policies and executive compensation. An empirical analysis of 324 American leisure and travel industry data was conducted using multiple regression analysis for the pre-Pandemic period of 2018-2019 and the Pandemic period of 2020-2021. The results indicate that the pattern of DACC changed during the Pandemic period, and firms engaged in income-decreasing earnings management (EM). Furthermore, the change in the pattern was significantly affected by government aid and incentives policies and executive compensation.