Political Uncertainty on Earnings Management: The Brexit Surprise political uncertainty on the level of real earnings management?’
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2021-07-21
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en
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Abstract
This thesis investigates the relation between the Brexit-vote-induced political uncertainty and earnings
management behavior. By creating proxies for real earnings management and accrual-based earnings
management, a panel data regression analysis determines whether the level of earnings management
increased after the Brexit-vote, whether the earnings management was income-increasing and whether
this can be attributed to the changed level of political uncertainty, which has not been researched
previously. The results of the main analysis show that managers tend to manage the earnings upwards
for accrual-based earnings management after the Brexit-vote, but this result is biased, for which a
sensitivity analysis is conducted. The sensitivity analysis shows that managers tend to manage the
earnings upwards for real earnings management after the Brexit. Furthermore, after the Brexit,
managers tend to engage in less accrual-based earnings management activities, and preferably manage
its accrual-based earnings upwards. This thesis contributes to the existing literature covering the topic
of earnings management and political uncertainty by examining the effects of Brexit-vote-induced
political uncertainty on the level of earnings management in a quasi-natural experimental setting to
create a causal relationship between the Brexit-vote-induced political uncertainty and earnings
management, a setting that is unique in this field of literature.
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Faculteit der Managementwetenschappen