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

Marco Bisogno,Pierre Donatella

doi:10.1108/jpbafm-03-2021-0035

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.

Highlights

Earnings management (EM) is a common practice in the private sector, and studies have adopted different theoretical approaches and research methods to investigate this topic (Dechow et al, 2010; Jones, 2011a)
By utilizing an structured literature review (SLR) methodology, we have systematically analyzed 78 articles published on EM in public-sector organizations during 1980–2021
Two older articles use a commentary/normative/ policy approach (Anthony, 1985; Hale, 1988), and one more recent article uses a literature review (Hodges, 2018). The latter is partial in scope: rather than providing a complete review of the research field, the article consists more of an in-depth discussion that builds on a limited sample of prior empirical research

Summary

Introduction

Earnings management (EM) is a common practice in the private sector, and studies have adopted different theoretical approaches and research methods to investigate this topic (Dechow et al, 2010; Jones, 2011a). EM has attracted the interest of many public-sector scholars, who are motivated by the implementation of accrual accounting systems. Both academics and practitioners were initially skeptical regarding accrual accounting in the public-sector context, even the most critical opponents agree that it is no longer possible to base the decision-making process only on cash accounting information (Bergmann et al, 2019). One of the key differences between cash and accrual accounting systems is that the latter relies heavily on professional judgment.

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