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Does geopolitical risk drive earnings management? Evidence from Low- and Middle-Income countries

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  • Taran-Bozbay, Alina
  • Zahid, R.M.Ammar
  • Shakri, Irfan Haider

Abstract

We examine the impact of geopolitical risk (GPR) on earnings management (EM) in low- and middle-income countries (LMICs). Using 257,659 firm-year observations from 16 LMICs (2002–2022) and System Generalized Method of Moments (System-GMM) estimations, we find that GPR significantly increases EM, especially under weak audit quality, low development, and high taxation. While EM buffers short-term shocks, it undermines transparency, underscoring the need for stronger institutions.

Suggested Citation

  • Taran-Bozbay, Alina & Zahid, R.M.Ammar & Shakri, Irfan Haider, 2025. "Does geopolitical risk drive earnings management? Evidence from Low- and Middle-Income countries," Finance Research Letters, Elsevier, vol. 86(PE).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pe:s1544612325020161
    DOI: 10.1016/j.frl.2025.108762
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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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