This PhD thesis is comprised of three individual research papers, examines
issues around earnings management and its implications for firms and
stakeholders, and provides new insights on factors that drive or mitigate the
accounting practice of earnings management. In the second chapter, I examine
whether earnings management and managerial overconfidence are factors that
affect the relationship of the firm with its customers and employees.
Furthermore, I examine the incremental effect of managerial overconfidence
on the association between earnings management and stakeholder
relationships, focusing on customers and employees. I find that both earnings
management and managerial overconfidence improve the relationship between
the firm and its customers, while I find some evidence that they deteriorate the
relationship of the firm with its employees. I do not find evidence to suggest
that managerial overconfidence acts as a factor amplifying the association
between earnings management stakeholder relationships. The results remain
consistent in various robustness tests, including alternative measures,
instrumental variable regressions, and difference in differences approach. In
the third chapter, I assess whether product market competition amplifies the
negative relationship between ESG and earnings management. ESG
engagement on its own is effective in mitigating earnings management.
However, engagement in ESG practices is more important in limiting earnings
management by the firm when competition is high. Disclosing ESG related
information, irrespective of the actual ESG performance of the firm, also
reduces earnings management when competition is high as managers
voluntarily provide more information about the firm’s operations. In the fourth
chapter, I assess whether political representation amplifies the negative
relationship between ESG engagement and earnings management. I find that
when Democrats are in power as elected state governors, ESG engagement is
effective in mitigating earnings management, as the Democratic party places
more emphasis on ESG policies. A one standard deviation increase in ESG
score leads to a 0.79% reduction in firms’ earnings management when Democrats are in power. Moreover, engagement in ESG practices is a better hedge against earnings management for firms incorporated in states with governors from the Democratic party compared to Republican states. Results remain consistent when using the control of the Senate suggesting that political representation has a persistent effect on ESG practices across different government levels.
| Date of Award | 15 Feb 2023 |
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| Original language | English |
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| Awarding Institution | - University Of Strathclyde
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| Sponsors | University of Strathclyde |
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| Supervisor | Krishna Paudyal (Supervisor) & Dimitris Andriosopoulos (Supervisor) |
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