The influence of accounting practices on financial performance: Evidence from French farms

Geoffroy Enjolras (), Philippe Madiès () and Hang Yue ()
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Geoffroy Enjolras: CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes, UGA INP IAE - Grenoble Institut d'Administration des Entreprises - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes
Philippe Madiès: CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes, UGA INP IAE - Grenoble Institut d'Administration des Entreprises - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes
Hang Yue: CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes

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Abstract: This paper examines the influence of accounting practices on financial performance with an application to farms. In response to the yield, price and weather risks they face, farms have strong incentives to manipulate their earnings. Design/methodology/approach We measure earnings management and performance using data from the Farm Accountancy Data Network (FADN), which is representative of French professional farms over the period 2000–2022. Findings Our results show that, on average, regardless of year and specialisation, farms use two competing strategies to manage their earnings and deal with uncertainty. In the short run, timely reporting of bad news can help them to access public support. In the long run, farms also smooth their earnings, which is justified by the need to maintain their access to credit and to cope with climatic and economic shocks. Research limitations/implications Further research could provide more precise evidence of the impact of climatic, geopolitical or market events on farm accounting practices. In addition, the analysis could be extended to other industries that are also exposed to risks. Practical implications The results shed new light on the observed volatility in farm profitability and their ability to manage risk. Accounting practices play an important role in helping farmers to cope with risky production and volatile market conditions. While farmers may appear to be in a difficult situation due to reduced and low-quality earnings, we believe that they are in fact resilient in ensuring the sustainability of their operations and financing. Originality/value This work highlights the key role of earnings management in risk management. Farms are a relevant example of small- and medium-sized enterprises (SMEs) exposed to natural and economic risks.

Date: 2025-02-11
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Published in Journal of applied accounting research, 2025, 26 (5), pp.930-958. ⟨10.1108/JAAR-05-2024-0178⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05567229

DOI: 10.1108/JAAR-05-2024-0178

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