Earnings management in state-owned enterprises: bringing publicness back in

Financial accountability is a major issue for State-owned Enterprises (SOEs) especially because of the large amount of public resources invested in them and the social relevance of their performance. In the awareness that the public interest is increasingly pursued in abstract arenas, the investigation of accounting should be anchored to conceptual rather than contextual spaces. Building on the dimensional concept of publicness, this paper investigates the impact of three publicness dimensions (ownership, political control, and goal ambiguity) on earnings management (EM) in SOEs, a managerial practice that affects the quality of financial accountability. Drawing on data from a sample of 1200 Italian SOEs, the conditional revenue model (Stubben, 2010) is used to estimate their EM during the period 2009-2017. These EM estimates are then regressed against dimensions of publicness. Findings show that publicness is either neutral or relevant for the quality of SOEs' financial accountability, depending on the dimensions analysed: while ownership and financial control are positively related to EM in SOEs, administrative control and goal ambiguity are not statistically significant predictors of EM. Moreover, the interaction of publicness dimensions does not affect EM in SOEs. Therefore, this paper shows that SOEs' publicness is either irrelevant or detrimental to the quality of SOEs' financial accountability, depending on the dimension of publicness considered. Efforts should be made to define policies and governance arrangements able to influence managers' behaviour in a way that preserves SOEs' financial accountability.