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Defence Contracting and Accrual‐Based Earnings Management

Author

Listed:
  • Francisco José Callado‐Muñoz
  • Juan Pedro Sánchez‐Ballesta
  • Natalia Utrero‐González
  • José Yagüe

Abstract

We examine accrual‐based earnings management in Spanish defence firms in 2011–2020, using a unique database from the Spanish Ministry of Defence. We find higher levels of accrual‐based earnings management and lower accrual quality in firms where defence contracts represent a high proportion of their total sales. Defence contractors manage earnings upwards under financial constraints and downwards when profitability is high. These findings suggest that defence firms may strategically manage earnings to enhance financial image or reduce visibility. Distinguishing among current defence suppliers, potential suppliers, and nondefence firms, we show that earnings management occurs specifically in years with defence sales.

Suggested Citation

  • Francisco José Callado‐Muñoz & Juan Pedro Sánchez‐Ballesta & Natalia Utrero‐González & José Yagüe, 2026. "Defence Contracting and Accrual‐Based Earnings Management," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 66(2), pages 1717-1737, June.
    • Handle: RePEc:bla:acctfi:v:66:y:2026:i:2:p:1717-1737
    DOI: 10.1111/acfi.70190
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    References listed on IDEAS

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