Accrual accounting earnings around zero in Greek municipalities: the relevance of political factors Online publication date: Fri, 11-Nov-2022
by Sandra Cohen; Ioanna Malkogianni
International Journal of Accounting, Auditing and Performance Evaluation (IJAAPE), Vol. 18, No. 2, 2022
Abstract: This paper provides empirical evidence that Greek municipalities report small surpluses or zero earnings and that there is a statistically significant political effect related to this attitude. The analysis is based on the annual financial data of Greek municipalities for the period 2011-2017. The final sample includes 1,417 annual observations. Based on the public choice theory, it is attempted to associate earnings management behaviour with political incentives and to uncover possible reasons that may induce it. By using the method of bootstrap kernel density estimation (bKDE), the hypothesis that municipalities tend to report earnings close to zero is supported. The findings suggest that core political factors, such as the opposition's strength and the mayor's re-election, exert an effect on the appearance of discontinuities around zero reported earnings, contributing to the knowledge regarding earnings management. Sensitivity analysis confirms this political effect.
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