Earnings management in municipal firms: evidence from Portugal
Journal of Public Budgeting, Accounting & Financial Management
ISSN: 1096-3367
Article publication date: 14 June 2022
Issue publication date: 11 July 2022
Abstract
Purpose
This paper investigates the earnings management (EM) practices of Portuguese municipal firms (MFs), which are a special type of public-sector entity.
Design/methodology/approach
MFs are identified using a dedicated list maintained by the Portuguese Government. Accounting data are collected from the Bureau Van Dijk's AMADEUS database. The Burgstahler and Dichev's (1997) methodology and panel data regression methods are employed to examine the EM practices of Portuguese MFs.
Findings
Portuguese MFs manage earnings to report small and positive net earnings and to avoid disclosing losses. There is evidence that such companies are more likely to engage in EM practices when facing higher liquidation risk and financial leverage, lower liquidity and in certain periods of the local election cycle.
Originality/value
This is one of the first studies investigating the EM practices of MFs, directly contributing to the literature that explores the relationship between state ownership and the quality of financial statements. The paper has important implications for the MFs' stakeholders, especially regulators and supervising authorities.
Keywords
Acknowledgements
The author would like to thank the Editor, Giuseppe Grossi, for all his help and support and two anonymous referees for their insightful comments. This paper is financed by National Funds of the FCT ‐ Portuguese Foundation for Science and Technology within the project “UIDB/04007/2020”.
Citation
Serra Coelho, L. (2022), "Earnings management in municipal firms: evidence from Portugal", Journal of Public Budgeting, Accounting & Financial Management, Vol. 34 No. 4, pp. 512-533. https://doi.org/10.1108/JPBAFM-02-2022-0026
Publisher
:Emerald Publishing Limited
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