Earnings Management During Antidumping Investigations in Europe: Sample-Wide and Cross-Sectional Evidence

This paper examines earnings management by EU firms that initiate an antidumping investigation. We first document economically and statistically significant income-decreasing earnings management around the initiation of an antidumping investigation. We show that earnings management increases when ac...

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Published inJournal of accounting research Vol. 55; no. 2; pp. 407 - 457
Main Authors GODSELL, DAVID, WELKER, MICHAEL, ZHANG, NING
Format Journal Article
LanguageEnglish
Published Chicago Wiley Subscription Services, Inc 01.05.2017
Blackwell Publishing Ltd
Subjects
Anti dumping
antidumping investigations
Capital markets
Companies
Coordination
Debt financing
Earnings
Earnings management
Europe
European Union
F13
Imports
Incentives
Investigations
M41
M48
Research methodology
Retaliation
Studies
Tariffs
trade regulation
Europe
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Summary:This paper examines earnings management by EU firms that initiate an antidumping investigation. We first document economically and statistically significant income-decreasing earnings management around the initiation of an antidumping investigation. We show that earnings management increases when accounting data directly affect the magnitude of the tariffs imposed in the trade investigation. We also find that earnings management decreases as the number of petitioning firms increases or as the distance between petitioning firms increases, suggesting free-rider and coordination problems. We find that earnings management increases when the petition is directed at a country that imports more goods from the petitioning firm's home country, suggesting that retaliation threats affect incentives. We document that raising equity or debt financing moderates income-decreasing earnings management, consistent with the idea that sample firms trade off capital market and regulatory considerations. Our results indicate that contemporary research methods can detect accruals-based earnings management in settings in which the incentives for earnings management can be clearly identified.
Bibliography:Journal of Accounting Research
http://research.chicagobooth.edu/arc/journal-of-accounting-research/online-supplements
conference. We especially thank Anya Kleymenova, who provided particularly detailed and institutionally rich comments. We are also grateful to Bureau van Dijk for making their ORBIS database available to us to support this research. We acknowledge funding from the Social Science and Humanities Research Council of Canada (SSHRCC) and the Smith School of Business at Queen's University. Welker acknowledges financial support from the KPMG fellowship at Queen's University. An online appendix to this paper can be downloaded at
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Accepted by Christian Leuz. We are grateful to Marc Busch for assistance in understanding trade regulations and data. We also acknowledge constructive comments on the manuscript from a very helpful anonymous referee, workshop participants from Virginia Tech, Hong Kong Polytechnic University, the University of Waterloo, Miami University of Ohio, and the University of Toronto, Agnes C.S. Cheng, Giorgio Gotti, Hollis Skaife, Ole‐Kristian Hope, Hans Christensen, Mark Maffett, Eddie Riedl, a reviewer for the International Accounting Section Mid‐Year Meeting, and participants at the 2014 Global Issues in Accounting Conference at UNC‐CH, the International Accounting Section Mid‐year Meeting and the 2016
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ISSN:0021-8456
1475-679X
DOI:10.1111/1475-679X.12166