Macroeconomic uncertainty and earnings management: evidence from commodity firms

Abstract

This study examines the relationship between macroeconomic uncertainty and earnings management, using quarterly data of US commodity firms from the period 1990–2019. The findings show that oil and iron firms use both accruals and real activities to decrease earnings in quarters with high basis risk. Earnings management is economically significant. Further investigation provides fine-grained evidence that specific types of uncertainty (economic policy, climate policy, geopolitical) have varying effects on earnings management. The study also provides evidence that earnings management is aimed at giving investors useful information about the firms’ performance during uncertain times. The study contributes to previous research on uncertainty and earnings management. It also informs market participants about the financial reporting quality of commodity firms, and has practical implications for financial reporting regulation in extracting industries.

Managerial Ability And Earnings Management: Moderating Role Of Risk-Taking Behavior

“…In this case, the prospector is used to risk-taking consequences. Besides uncertainty conditions (Rigamonti et al, 2024), risk-taking behaviour can also bring innovation that leads to an opportunity to create new products, markets, and technology (Hossain et al, 2022). It is common for prospector firms to face uncertainty.…”

“…When managers use a risky strategy, there is a higher uncertainty where higher risk can offer higher profits, but at the same time, higher risk can also bring bigger losses. Uncertainty leads managers to make an adjustment when uncertainty leads to higher costs and reduces revenue (Rigamonti et al, 2024). Profitslosses uncertainty can lead to higher earnings volatility.…”