Do private firms engage in earnings management practices to get capital grants? Some evidence from Italy

Capital subsidies in favour of disadvantaged European regions dramatically dropped during the 2007-2013 European Union (EU) programming period due to relevant changes in the EU membership and rules. These changes have implied for beneficiary firms a greater effort both to compete for a lower slide of public resources and to demonstrate their ability to integrate the residual unsubsidised stake of their investments either through their own internal resources or by external financing. Assessing firms’ operating and financial performance becomes thus central for granting authorities that have to select the beneficiaries. In turn, these stricter conditions to gain a non-tax benefit in the form of capital subsidies are expected to influence the financial reporting process of private firms. Using a large sample of beneficiary and non-beneficiary firms, this study aims to investigate whether private firms manipulate their financial accounts in order to benefit from capital subsidies after the EU changed its aid policy. Results show that Italian private firms manage earnings upward, by exercising accounting discretion on specific revenues and expenses, in order to receive capital grants. Southern firms appear to manipulate earnings more than Northern firms due to a stronger competition for public resources.

Grantor dc:publisher

Università degli Studi di Cagliari

Year dc:date

2017

Author dc:creator

• PIANO, MARCO

Contributors dc:contributor

• MURA, ALESSANDRO
• MARROCU, EMANUELA

• Earnings management, capital grants, private firms, EU regional policy
• Settore SECS-P/07 - Economia Aziendale

Language dc:language

eng

Handle dc:identifier

http://hdl.handle.net/11584/246535

OAI identifier oai:identifier

oai:iris.unica.it:11584/246535