Political Uncertainty on Earnings Management: The Brexit Surprise political uncertainty on the level of real earnings management?’
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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.
Faculteit der Managementwetenschappen