Earnings management in local governments under a soft control regime

Bibliographic Data

ID20201383
AuthorsAne Haugdal (0000-0002-1083-1946, Norwegian University of Science and Technology), Frode Kjærland (0000-0001-5276-1950, Norwegian University of Science and Technology), Levi Gårseth-Nesbakk (0000-0001-6843-9683, Nord University), Are Oust (0000-0002-0601-5268, Norwegian University of Science and Technology)
Year2024
Volume36
Issue3
Pages277-295
Publication date2024-07-04
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueJournal of Public Budgeting Accounting & Financial Management (JOURNAL)
Journal identifiersISSN: 1096-3367 • E-ISSN: 1945-1814
PublisherEmerald (PUBLISHER)
DOI10.1108/jpbafm-10-2021-0144
OpenAlexW4389288573
LanguageEN
References cited36

Purpose This study explores whether hard regulatory control decreases the level of earnings management in local governments. The implementation of a new regulatory approach by Norwegian authorities provides the opportunity for an empirical study. Design/methodology/approach The authors adopt a two-stage strategy to investigate the existence of earnings management, using the Jones (1991) and modified Jones (Dechow et al. , 1995) models to construct a random-effects model. Findings The authors test the hypothesis that, given decentralisation of control, there will be an increase in opportunistic financial reporting. This study's findings suggest that this is not the case, thereby indicating that a soft control regime does not diminish discipline in municipalities. Practical implications This study has practical implications for policymaking in the public sector. Its findings suggest that municipalities do not engage in more earnings management under a soft regulatory regime. Hence, other authorities should consider adopting a soft regulatory approach to controlling local governments and their financial reporting systems. Originality/value This study contributes to a growing body of literature regarding earnings management by local governments. The authors investigate a hypothesis previously untested in the literature by comparing the degree of earnings management under different regulatory control regimes

Business · Decentralization · Earnings · Earnings Management · Economics · Management · Market economy · Norwegian · Originality · Political science · Public economics · Auditing, Earnings Management, Governance · Fiscal Policies and Political Economy · Public Policy and Administration Research · Accounting

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Open DOIOpen Access