 The effect of political connections on earnings management: Evidence from ECB-supervised banksCatarina Proença, Mário Augusto and José Murteira Research in International Business and Finance, 2025, vol. 74, issue C Abstract: This study examines the effect of political connections on earnings management in banks supervised by the European Central Bank (ECB). The study analyses panel data on 58 banks supervised by the European Central Bank (ECB) from 2012 to 2019, using generalized method moment (GMM). Our results suggest a non-linear U-inverted relationship between political connections and earnings management practices. When political connections are low or moderate, they tend to favor earnings management, evidencing the opportunism of politically connected directors, with reflections on discretionary earnings management. However, in boards whose members have strong political connections, this effect is negative, suggesting that directors in this situation will not resort to discretionary practices, as they consider that they will be subject to greater scrutiny and oversight. These results are generally robust when we consider alternative earnings management measures. Keywords: Earnings management; Political connections; Banks (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:74:y:2025:i:c:s027553192400504x DOI: 10.1016/j.ribaf.2024.102711 Access Statistics for this article Research in International Business and Finance is currently edited by T. Lagoarde Segot More articles in Research in International Business and Finance from Elsevier |
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