Title: Accrual accounting earnings around zero in Greek municipalities: the relevance of political factors

Authors: Sandra Cohen; Ioanna Malkogianni

Addresses: Department of Business Administration, Athens University of Economics and Business, School of Business, 10434, Athens, Greece ' Department of Accounting and Finance, School of Economics and Business, International Hellenic University, 65404, Kavala, Greece

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.

Keywords: bootstrap kernel density estimation; earnings management; Greek municipalities; opposition; re-elected mayors; public choice theory.

DOI: 10.1504/IJAAPE.2022.126877

International Journal of Accounting, Auditing and Performance Evaluation, 2022 Vol.18 No.2, pp.137 - 162

Received: 05 Nov 2019
Accepted: 21 Oct 2020
Published online: 11 Nov 2022 *

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