Political Costs and Earnings Management of Oil Companies in the 1990 Persian Gulf Crisis

The Accounting Review 1998

Posted: 29 Oct 1997

See all articles by Shiing-wu Wang

Shiing-wu Wang

University of Southern California - Leventhal School of Accounting

Jerry C. Y. Han

SUNY at Buffalo

Abstract

This study investigates whether firms that expect increases in earnings resulting from sudden product price increases use accounting accruals to reduce earnings and, thus, political sensitivity. Specifically, oil firms' accruals are analyzed in a period of rapid gasoline price increases during the 1990 Persian Gulf crisis. Our results show that oil firms expected to profit from the crisis used accruals to reduce their reported quarterly earnings during the Gulf crisis. In contrast to previous research, we find that the tendency to release good earnings news early, documented in prior research, is reversed for oil firms during the Gulf crisis. This finding suggests that the benefit of disclosing "good news" (i.e., earnings increases) early may have been outweighed by the political costs associated with timely releases of the information.

JEL Classification: M41, M43

Suggested Citation

Wang, Shiing-wu and Han, Jerry C. Y., Political Costs and Earnings Management of Oil Companies in the 1990 Persian Gulf Crisis. The Accounting Review 1998, Available at SSRN: https://ssrn.com/abstract=37900

Shiing-wu Wang (Contact Author)

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States
213-740-5012 (Phone)
213-747-2815 (Fax)

Jerry C. Y. Han

SUNY at Buffalo ( email )

School of Management Jacobs Management Center
Buffalo, NY 14260
United States
716-645-3215 (Phone)
716-645-3823 (Fax)

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