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Earnings management in municipal firms: evidence from Portugal

Author

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  • Luís Serra Coelho

Abstract

Purpose - This paper investigates the earnings management (EM) practices of Portuguese municipal firms (MFs), which are a special type of public-sector entity. Design/methodology/approach - MFs are identified using a dedicated list maintained by the Portuguese Government. Accounting data are collected from the Bureau Van Dijk's AMADEUS database. The Burgstahler and Dichev's (1997) methodology and panel data regression methods are employed to examine the EM practices of Portuguese MFs. Findings - Portuguese MFs manage earnings to report small and positive net earnings and to avoid disclosing losses. There is evidence that such companies are more likely to engage in EM practices when facing higher liquidation risk and financial leverage, lower liquidity and in certain periods of the local election cycle. Originality/value - This is one of the first studies investigating the EM practices of MFs, directly contributing to the literature that explores the relationship between state ownership and the quality of financial statements. The paper has important implications for the MFs' stakeholders, especially regulators and supervising authorities.

Suggested Citation

  • Luís Serra Coelho, 2022. "Earnings management in municipal firms: evidence from Portugal," Journal of Public Budgeting, Accounting & Financial Management, Emerald Group Publishing Limited, vol. 34(4), pages 512-533, June.
    • Handle: RePEc:eme:jpbafm:jpbafm-02-2022-0026
    DOI: 10.1108/JPBAFM-02-2022-0026
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