The political economy of earnings management in municipally owned enterprises

Bibliographic Data

ID20201840
AuthorsHarry Müller (0000-0002-5571-8234, Ludwigshafen University of Business and Society), Marcus Sidki (0000-0002-0786-7155, Ludwigshafen University of Business and Society)
Year2024
Volume36
Issue3
Pages363-387
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-05-2023-0082
OpenAlexW4400097687
LanguageEN
References cited88

Purpose Despite the growing body of empirical literature on earnings management in municipal bodies and enterprises on the municipal level, the theoretical foundations often remain limited. This article contributes to filling this research gap by discussing the agency relationships between entities, managers, politicians and the electorate based on the framework of political economy or, more specifically, economic theory of political action. It derives theoretical explanations for earnings management in municipally owned enterprises based on political-economic approaches and provides conceptual guidelines for further theoretical and empirical research in this field. Design/methodology/approach The article discusses three specific theoretical approaches of political economy (political budget cycles/election cycles, interest fragmentation and partisan ideology) and applies them to the governance structures of municipally owned enterprises. For each of the perspectives, predictions about the use of earnings management and its possible motivations are derived. Findings The study shows that political budget cycles/election cycles, interest fragmentation and partisan ideology in municipal decision-making bodies can serve as possible explanations as to which extent managers of municipally owned enterprises present manipulated financial statements. All three approaches can help to explain the prevalence of earnings management but lead to different results regarding the methods and aims of earnings management. Originality/value As a significant portion of the current literature on earnings management in municipally owned enterprises lacks a theoretical foundation, our article aims to fill this caveat. To do so, we introduce three new conceptual perspectives that explain the prevalence of earnings management in such enterprises and the political-economic environments that are more likely to produce manipulated financial statements

Business · Earnings · Economics · Market economy · Political science · Politics · Auditing, Earnings Management, Governance · Credit Risk and Financial Regulations · Fiscal Policies and Political Economy · Law · Accounting

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