Mayor re-election and earnings management: evidence from Portuguese municipalities

Augusta Ferreira

Journal of Public Budgeting, Accounting & Financial Management, 2023, vol. 36, issue 3, 296-319

Abstract: Purpose - The aim of this paper is to investigate whether Mayors in Portugal engage in earnings management close to zero with the motivation of re-election. Design/methodology/approach - The data used in this study were annual financial information from Portuguese municipalities from 2005 to 2016, as well as data on elections and Mayor re-elections involving three political cycles. The methodologies employed were quantitative, including graphical and panel data regressions. Findings - The results indicate that municipalities used discretionary accruals to engage in earnings management to report net earnings close to zero, and re-election seems to be a motivation for earnings management behaviour. Furthermore, the results suggest that municipalities in which the Mayor is re-elected are less likely to report positive net earnings close to zero. Originality/value - This paper makes a valuable contribution to the literature on earnings management in municipalities. At the theoretical level, it makes it possible to identify whether re-election is a motivation for earnings management and, in this sense, to identify patterns of behaviour by managers. On a practical level, the knowledge of a manager's behaviour patterns will help to anticipate his or her future behaviour and, consequently, may prevent inefficiencies.

Keywords: Earnings management; Discretionary accruals; Re-election; Portuguese municipalities; Agency theory; Public choice theory (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jpbafm:jpbafm-01-2023-0005

DOI: 10.1108/JPBAFM-01-2023-0005

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