Firm-level political risk and earnings opacity |
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| Institution: | 1. University of Economics Ho Chi Minh City, Viet Nam;2. Lincoln University, Lincoln, New Zealand;3. IPAG Business School, Paris, France;4. Banking Academy of Vietnam, Hanoi, Viet Nam;1. University of Eastern Piedmont and CeRP-Collegio Carlo Alberto, Italy;2. University of Turin and CeRP-Collegio Carlo Alberto, Italy;3. Commissione di Vigilanza sui Fondi Pensione, Italy;1. School of Economics and Management, Tsinghua University, Beijing 100084, China;2. Guanghua School of Management, Peking University, Beijing 100085, China;3. School of Accountancy, Singapore Management University, Singapore 188065, Singapore;4. College of Economics and Management, China Agricultural University, Beijing 100083, China;1. Center for Gender, Leadership, and Inclusion, Cranfield University School of Management, United Kingdom;2. Department of Business Administration, University of Cyprus, Cyprus;3. Department of Accounting and Finance, University of Cyprus, Cyprus;1. Fort Lewis College, School of Business Administration EBH #174, 1000 Rim Drive, Durango, CO 81301, USA;2. Louisiana State University, 2833 Business Education Complex North, 501 South Quad Drive, Baton Rouge, LA 70803, USA;3. Louisiana State University, 2821 Business Education Complex North, 501 South Quad Drive, Baton Rouge, LA 70803, USA;4. Louisiana State University, 2836 Business Education Complex North, 501 South Quad Drive, Baton Rouge, LA 70803, USA;1. School of Accounting, Economics and Finance, Curtin University, Australia;2. Faculty of Finance, City University of Macau, Macao |
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| Abstract: | Given the recent growing global uncertainties, firms have encountered increasing political risks and responded accordingly to avoid a negative impact on their performance. This study examines the impact of firm-level political risk on corporate earnings opacity among listed U.S. firms. Our empirical results reveal that higher firm-level political risk engenders greater corporate earnings opacity via three channels of market scrutiny, political proximity, and multiple business objectives. Further analyses show that politically risky firms are more prudent in earnings management when they are highly dependent on government spending. The results hold after a wide range of robustness tests. Our findings provide several implications for the management of earnings quality in response to increasing firm-level political risk in the U.S. |
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| Keywords: | Agency problem Earnings opacity Firm-level political risk Government spending Political uncertainty D8 G30 G32 |
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