Rule of Law, Control of Corruption and Democracy Impact on Earnings Management

• In Event: Accounting, Behavior, and Organizations

Abstract

This study examines AI algorithmic pathways capturing the relation between managers’ perception of norms of governance (rule of law, control of corruption and democracy) and earnings management from a framing perspective across 102 countries. We find that managers’ perception of better norms of governance at country-level can effectively mitigate earnings management. Furthermore, firms tend to have lower real earnings management while higher accrual-based earnings management in developed countries where the perception of rule of law and control of corruption are stronger. Perception of better democratic accountability in developed countries can mitigate both types of earnings management.

Author

• fuzhao zhou, State University of New York College at Brockport