Earnings management in public-sector organizations: a structured literature review

Abstract

PurposeResearch dealing with earnings management in the public-sector context is expanding. This paper aims to review the existing literature to understand how research is developing and points out gaps deserving further investigation.Design/methodology/approachThis study uses the structured literature methodology to investigate the state-of-the-art and future directions of the literature on earnings management in the public sector. In total, 78 articles were explored.FindingsThe critical analysis of the literature shows that different but related streams of literature are emerging, focused on both a macro- and a micro-level perspective (mainly local governments and state-owned enterprises).Originality/valueThis study is the first that offers a comprehensive review of the literature on the emerging topic of earnings management in the public-sector context. The structured literature review enables the identification of future directions for the literature in this field.

Earnings management in municipal firms: evidence from Portugal

“…At a more general level, this paper also adds to the still limited literature looking at how public entities engage in EM practices (Bisogno and Donatella, 2022). The bulk of the empirical evidence on this topic is for private firms.…”

“…As Bisogno and Donatella (2022) explain, the bulk of available evidence on the EM practices of state-owned companies originates from China. Aharony et al.…”

“…2.3.2 EM practices of state-owned companies. As Bisogno and Donatella (2022) explain, the bulk of available evidence on the EM practices of state-owned companies originates from China. Aharony et al (2000) and Chen and Yuan (2004) are among the first to provide evidence that state-owned Chinese firms manage earnings relatively more than their privately-owned counterparts do.…”

“…Dechow and Skinner, 2000; Healy and Wahlen, 1999; Walker, 2013). However, after recently reviewing the literature, Bisogno and Donatella (2022) conclude that “ EM in the public-sector organizations is an emerging area of research. ” This paper adds to this body of knowledge by exploring the EM practices of municipal firms (MFs), an important but still underresearched topic.…”

“…” This paper adds to this body of knowledge by exploring the EM practices of municipal firms (MFs), an important but still underresearched topic. Bisogno and Donatella (2022) identify 26 and 27 articles that investigate the EM behavior of local governments and state-owned enterprises, respectively. Yet, only the Capalbo et al.’s (2021) study seems to consider municipal utility firms, focusing exclusively on Italian data and mainly addressing the relationship between the use of EM and the electoral cycle.…”