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Policy uncertainty and real activities manipulation: evidence from Brexit

Author

Listed:
  • Naser Makarem

    (University of Aberdeen)

  • Harjinder Singh

    (Curtin University)

  • Nigar Sultana

    (Curtin University)

  • Darren Henderson

    (Wilfrid Laurier University)

Abstract

Brexit exposed the UK to substantial policy uncertainty that could affect the performance and behavior of British firms. We examine the impact of Brexit as an exogenous shock to policy uncertainty on real activities manipulation by British firms. Using several measures of real activities manipulation and a difference-in-differences design, we compare the earnings management of firms most adversely affected by Brexit uncertainty (affected firms) to other firms. Our results indicate that the affected firms exhibit higher real activities manipulation after the Brexit vote and we also find that they demonstrate similarly higher accruals management. Our findings suggesting that policy uncertainty induces the costly practice of real activities manipulation are relevant to various stakeholders including policymakers and financial statements users.

Suggested Citation

  • Naser Makarem & Harjinder Singh & Nigar Sultana & Darren Henderson, 2023. "Policy uncertainty and real activities manipulation: evidence from Brexit," Review of Quantitative Finance and Accounting, Springer, vol. 61(4), pages 1415-1440, November.
    • Handle: RePEc:kap:rqfnac:v:61:y:2023:i:4:d:10.1007_s11156-023-01189-6
    DOI: 10.1007/s11156-023-01189-6
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    More about this item

    Keywords

    Brexit; Policy uncertainty; Real activities manipulation; Earnings management;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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