Policy Uncertainty and Accounting Quality

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Using data from 19 countries over the 1990-2015 period, we examine how economic policy uncertainty (EPU) affects accounting quality. We find that accounting quality, measured based on Nikolaev's (2018) model, increases during periods of high policy uncertainty. This relation is confirmed by the negative association between EPU and performance-adjusted discretionary accruals in a multivariate setting, and it extends to various alternative measures of earnings properties. We also find that the positive relation between EPU and accounting quality is more pronounced for government-dependent firms and firms with higher political risk. Additional analyses based on institutional investors' trading behavior, media freedom, and press circulation suggest that market participants' attention is a mechanism through which EPU affects accounting quality. Further, we find evidence that high accounting quality can mitigate the negative effects of EPU on corporate investment and valuation.
Publisher
AMER ACCOUNTING ASSOC
Issue Date
2021-07
Language
English
Article Type
Article
Citation

ACCOUNTING REVIEW, v.96, no.4, pp.233 - 260

ISSN
0001-4826
DOI
10.2308/TAR-2018-0057
URI
http://hdl.handle.net/10203/286905
Appears in Collection
MT-Journal Papers(저널논문)
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