Earnings manipulations in politically influenced firms

Abstract

This paper investigates the relationship between political influences and earnings manipulations because little has been known about the relationship between both variables using multiple proxies. The authors measure earnings manipulation using models developed by Bhattacharya et al. (2003) and McNichols (2002), for a large sample of 129 listed firms in Pakistan Stock Exchange over the period 2009–2013. This study finds that politically influenced firms are involved in accruals earnings management and lack transparency, implying lower earnings quality. Our findings are consistent with prior studies, which show the positive relationship between political influences and earnings manipulations. However, the authors add contribution by using three proxies of political influences. The findings are useful for regulators to monitor earnings manipulations activities among public listed companies. In addition, the findings add to the growing literature in the field of corporate governance.