Economic Policy Uncertainty and Earnings Management: Evidence from Brexit Referendum

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Issue Date
2022-01-31
Language
en
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Abstract
Economic policy uncertainty (EPU) plays a crucial role in shaping a country’s economic outcome. More specifically, after the 2008 financial crisis, there was a spike in economic policy uncertainty due to uncertainties regarding the government’s future regulatory, monetary, and taxes policies. High uncertainty affects the way businesses and individuals spend and invests. Since then, the relevance of economic policy uncertainty has become more important during the years. The recent event of Brexit referendum in United Kingdom has been surrounded with a lot of uncertainties and doubts. It has implications on both the micro- and macro-economics. This paper uses accruals-based earnings management as its proxy for earnings management (EM). By using the news based EPU index, the sample consists of 1,400 firm-year observations over the period 2015-2016. Prior findings in the literature shows mixed results, there is not a clear view of the relationship between EPU and EM. However, this paper, given its specific setting, shows that EPU does not affect EM. This paper contributes to the literature by providing groundwork for future research with research setting that can be further examined.
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Faculteit der Managementwetenschappen
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