Table 6 Alternative measures of...

Table 6

Alternative measures of reporting quality and earnings management

	(1)	(2)	(3)	(4)	(5)	(6)	(7)
Variables	F-score	M-Score	AbsAccruals	AccrualsQty	AbdisExp	AbCFO	AbProdCost
Panel A. Direct effect of EPU
Ln EPU	2.552**	−0.126**	−3.474***	−0.505***	−0.106***	−1.153***	−2.034***
Ln EPU	(1.059)	(0.055)	(0.101)	(0.010)	(0.017)	(0.075)	(0.020)
LnSize	−2.698***	0.001	0.260***	0.043***	−0.124***	0.425***	0.139***
LnSize	(0.327)	(0.021)	(0.036)	(0.003)	(0.006)	(0.028)	(0.009)
Leverage	−1.571	−0.375***	1.060***	0.167***	0.028	0.923***	0.291***
Leverage	(1.430)	(0.129)	(0.139)	(0.017)	(0.030)	(0.104)	(0.037)
MTB	0.275***	0.004	0.017***	0.001**	0.000	0.012***	0.000
MTB	(0.049)	(0.003)	(0.005)	(0.000)	(0.001)	(0.003)	(0.001)
ROA	−0.202	5.239***	0.217*	0.939***	0.230***	0.241***	−0.042
ROA	(1.619)	(0.114)	(0.118)	(0.015)	(0.025)	(0.077)	(0.026)
Cash Flow(OP)	2.368	−2.002***	−1.050***	−0.003	0.110***	−0.868***	−0.127***
Cash Flow(OP)	(1.621)	(0.161)	(0.168)	(0.019)	(0.030)	(0.129)	(0.042)
Cash Volatility	1.745***	0.026	0.050	0.023***	−0.016	0.002	−0.062***
Cash Volatility	(0.541)	(0.049)	(0.052)	(0.007)	(0.011)	(0.038)	(0.016)
Sales Volatility	2.371*	0.069	−0.335***	−0.019	−0.021	−0.292***	0.036
Sales Volatility	(1.330)	(0.084)	(0.110)	(0.014)	(0.023)	(0.084)	(0.028)
INVZ	−0.230***	0.025***	−0.004	0.001	−0.024***	0.010	0.010***
INVZ	(0.086)	(0.008)	(0.010)	(0.001)	(0.002)	(0.008)	(0.003)
GDP Growth	−0.192	0.035***	3.169***	−0.147***	0.015***	2.388***	−0.148***
GDP Growth	(0.178)	(0.009)	(0.016)	(0.001)	(0.002)	(0.015)	(0.002)
VIX	0.041	0.005	0.900***	−0.011***	0.024***	0.589***	0.017***
VIX	(0.057)	(0.003)	(0.006)	(0.000)	(0.001)	(0.004)	(0.001)
Constant	16.403***	−1.713***	−8.191***	3.435***	1.979***	−12.629***	8.687***
Constant	(4.565)	(0.250)	(0.477)	(0.050)	(0.072)	(0.379)	(0.097)
Observations	61,356	61,356	61,308	54,581	61,310	61,308	48,892
Adjusted R-squared	0.039	0.333	0.615	0.410	0.496	0.727	0.517
Firm FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Panel B. Interaction with forecaster
Ln EPU	−3.188*	−0.198**	−19.91***	0.157***	−0.840***	−12.49***	−3.216***
Ln EPU	(1.787)	(0.0839)	(0.174)	(0.0120)	(0.0297)	(0.113)	(0.0281)
Forecaster	−32.77***	−0.919**	−0.198	−1.132***	−0.284***	1.160**	0.211
Forecaster	(8.724)	(0.394)	(0.711)	(0.138)	(0.0837)	(0.568)	(0.167)
lnEPU*Forecaster	6.730***	0.180**	−0.0335	0.211***	0.0177	−0.207*	−0.0180
lnEPU*Forecaster	(1.823)	(0.0815)	(0.155)	(0.0284)	(0.0176)	(0.123)	(0.0362)
Ln EPU_lag	4.475***	0.122*	18.64***	−0.766***	0.911***	12.71***	1.271***
Ln EPU_lag	(1.339)	(0.0652)	(0.110)	(0.00737)	(0.0197)	(0.0740)	(0.0107)
LnSize	−2.904***	0.000452	0.232***	0.0470***	−0.140***	0.429***	0.143***
LnSize	(0.356)	(0.0215)	(0.0412)	(0.00388)	(0.00690)	(0.0330)	(0.00952)
Leverage	0.126	−0.477***	1.934***	0.174***	0.0930***	1.520***	0.378***
Leverage	(1.631)	(0.127)	(0.163)	(0.0190)	(0.0333)	(0.122)	(0.0411)
MTB	0.254***	0.00385	0.0215***	0.00137***	0.000985	0.0146***	0.000523
MTB	(0.0555)	(0.00314)	(0.00453)	(0.000518)	(0.000739)	(0.00335)	(0.000868)
ROA	2.763	5.041***	−0.186	0.910***	0.110***	0.107	−0.0110
ROA	(1.867)	(0.139)	(0.126)	(0.0173)	(0.0316)	(0.0848)	(0.0297)
Cash Flow(OP)	0.144	−1.659***	−1.165***	−0.0202	0.137***	−1.042***	−0.165***
Cash Flow(OP)	(1.898)	(0.171)	(0.186)	(0.0219)	(0.0370)	(0.145)	(0.0475)
Cash Volatility	2.194***	−0.0403	−0.0274	0.0222***	−0.0141	−0.0381	−0.0606***
Cash Volatility	(0.662)	(0.0523)	(0.0568)	(0.00752)	(0.0133)	(0.0436)	(0.0182)
Sales Volatility	2.632*	0.158*	−0.866***	0.00338	−0.0582**	−0.637***	−0.00589
Sales Volatility	(1.469)	(0.0865)	(0.131)	(0.0151)	(0.0268)	(0.0985)	(0.0305)
INVZ	−0.150	0.0270***	−0.0312***	−0.00148	−0.0323***	0.000348	0.0108***
INVZ	(0.0947)	(0.00855)	(0.0116)	(0.00112)	(0.00218)	(0.0101)	(0.00318)
GDP Growth	−0.538**	0.0266***	1.828***	−0.0998***	−0.0701***	1.508***	−0.228***
GDP Growth	(0.209)	(0.00975)	(0.0108)	(0.00100)	(0.00204)	(0.00884)	(0.00205)
VIX	0.0524	0.00336	0.988***	−0.0143***	0.0260***	0.656***	0.0265***
VIX	(0.0604)	(0.00308)	(0.00574)	(0.000432)	(0.00122)	(0.00377)	(0.000964)
Constant	23.92***	−1.965***	−17.20***	3.880***	1.423***	−18.59***	8.207***
Constant	(5.402)	(0.281)	(0.545)	(0.0640)	(0.0821)	(0.458)	(0.115)
Observations	54,029	54,029	53,993	48,106	53,993	53,993	43,649
Adjusted R-squared	0.151	0.387	0.763	0.479	0.593	0.827	0.593
Firm FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Panel C. Interaction with number of forecasts
Ln EPU	−3.219*	−0.197**	−19.91***	0.164***	−0.854***	−12.48***	−3.196***
Ln EPU	(1.784)	(0.0834)	(0.174)	(0.0116)	(0.0297)	(0.112)	(0.0276)
Number of Forecasts	−19.16***	−0.524**	−0.102	−0.764***	−0.163***	0.701**	0.244**
Number of Forecasts	(5.522)	(0.227)	(0.437)	(0.0836)	(0.0526)	(0.350)	(0.102)
lnEPU*Number of Forecasts	4.059***	0.104**	−0.0293	0.140***	0.0157	−0.135*	−0.0409*
lnEPU*Number of Forecasts	(1.155)	(0.0467)	(0.0945)	(0.0171)	(0.0109)	(0.0747)	(0.0221)
Ln EPU_lag	4.526***	0.123*	18.64***	−0.768***	0.912***	12.71***	1.269***
Ln EPU_lag	(1.339)	(0.0652)	(0.110)	(0.00741)	(0.0197)	(0.0741)	(0.0107)
LnSize	−2.939***	−0.000132	0.233***	0.0485***	−0.141***	0.432***	0.145***
LnSize	(0.356)	(0.0216)	(0.0413)	(0.00389)	(0.00691)	(0.0330)	(0.00957)
Leverage	0.0982	−0.478***	1.937***	0.176***	0.0916***	1.523***	0.379***
Leverage	(1.632)	(0.127)	(0.163)	(0.0191)	(0.0333)	(0.122)	(0.0412)
MTB	0.255***	0.00388	0.0214***	0.00137***	0.00103	0.0145***	0.000492
MTB	(0.0555)	(0.00314)	(0.00453)	(0.000518)	(0.000740)	(0.00335)	(0.000871)
ROA	2.767	5.041***	−0.186	0.909***	0.110***	0.106	−0.0117
ROA	(1.867)	(0.139)	(0.126)	(0.0173)	(0.0316)	(0.0848)	(0.0297)
Cash Flow(OP)	0.143	−1.659***	−1.164***	−0.0204	0.139***	−1.043***	−0.167***
Cash Flow(OP)	(1.898)	(0.171)	(0.186)	(0.0219)	(0.0370)	(0.145)	(0.0476)
Cash Volatility	2.200***	−0.0401	−0.0270	0.0221***	−0.0135	−0.0387	−0.0608***
Cash Volatility	(0.662)	(0.0523)	(0.0568)	(0.00753)	(0.0132)	(0.0436)	(0.0182)
Sales Volatility	2.652*	0.158*	−0.868***	0.00239	−0.0576**	−0.639***	−0.00651
Sales Volatility	(1.469)	(0.0865)	(0.131)	(0.0151)	(0.0268)	(0.0985)	(0.0305)
INVZ	−0.152	0.0270***	−0.0311***	−0.00146	−0.0324***	0.000455	0.0108***
INVZ	(0.0947)	(0.00855)	(0.0117)	(0.00112)	(0.00218)	(0.0101)	(0.00318)
GDP Growth	−0.516**	0.0270***	1.827***	−0.101***	−0.0696***	1.507***	−0.229***
GDP Growth	(0.209)	(0.00975)	(0.0108)	(0.00101)	(0.00205)	(0.00885)	(0.00205)
VIX	0.0601	0.00351	0.988***	−0.0145***	0.0264***	0.655***	0.0262***
VIX	(0.0605)	(0.00308)	(0.00575)	(0.000433)	(0.00122)	(0.00377)	(0.000963)
Constant	23.64***	−1.981***	−17.22***	3.856***	1.472***	−18.64***	8.127***
Constant	(5.332)	(0.277)	(0.536)	(0.0620)	(0.0809)	(0.450)	(0.113)
Observations	54,029	54,029	53,993	48,106	53,993	53,993	43,649
Adjusted R-squared	0.151	0.387	0.763	0.480	0.592	0.827	0.593
Firm FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes

	(1)	(2)	(3)	(4)	(5)	(6)	(7)
Variables	F-score	M-Score	AbsAccruals	AccrualsQty	AbdisExp	AbCFO	AbProdCost
Panel A. Direct effect of EPU
Ln EPU	2.552**	−0.126**	−3.474***	−0.505***	−0.106***	−1.153***	−2.034***
Ln EPU	(1.059)	(0.055)	(0.101)	(0.010)	(0.017)	(0.075)	(0.020)
LnSize	−2.698***	0.001	0.260***	0.043***	−0.124***	0.425***	0.139***
LnSize	(0.327)	(0.021)	(0.036)	(0.003)	(0.006)	(0.028)	(0.009)
Leverage	−1.571	−0.375***	1.060***	0.167***	0.028	0.923***	0.291***
Leverage	(1.430)	(0.129)	(0.139)	(0.017)	(0.030)	(0.104)	(0.037)
MTB	0.275***	0.004	0.017***	0.001**	0.000	0.012***	0.000
MTB	(0.049)	(0.003)	(0.005)	(0.000)	(0.001)	(0.003)	(0.001)
ROA	−0.202	5.239***	0.217*	0.939***	0.230***	0.241***	−0.042
ROA	(1.619)	(0.114)	(0.118)	(0.015)	(0.025)	(0.077)	(0.026)
Cash Flow(OP)	2.368	−2.002***	−1.050***	−0.003	0.110***	−0.868***	−0.127***
Cash Flow(OP)	(1.621)	(0.161)	(0.168)	(0.019)	(0.030)	(0.129)	(0.042)
Cash Volatility	1.745***	0.026	0.050	0.023***	−0.016	0.002	−0.062***
Cash Volatility	(0.541)	(0.049)	(0.052)	(0.007)	(0.011)	(0.038)	(0.016)
Sales Volatility	2.371*	0.069	−0.335***	−0.019	−0.021	−0.292***	0.036
Sales Volatility	(1.330)	(0.084)	(0.110)	(0.014)	(0.023)	(0.084)	(0.028)
INVZ	−0.230***	0.025***	−0.004	0.001	−0.024***	0.010	0.010***
INVZ	(0.086)	(0.008)	(0.010)	(0.001)	(0.002)	(0.008)	(0.003)
GDP Growth	−0.192	0.035***	3.169***	−0.147***	0.015***	2.388***	−0.148***
GDP Growth	(0.178)	(0.009)	(0.016)	(0.001)	(0.002)	(0.015)	(0.002)
VIX	0.041	0.005	0.900***	−0.011***	0.024***	0.589***	0.017***
VIX	(0.057)	(0.003)	(0.006)	(0.000)	(0.001)	(0.004)	(0.001)
Constant	16.403***	−1.713***	−8.191***	3.435***	1.979***	−12.629***	8.687***
Constant	(4.565)	(0.250)	(0.477)	(0.050)	(0.072)	(0.379)	(0.097)
Observations	61,356	61,356	61,308	54,581	61,310	61,308	48,892
Adjusted R-squared	0.039	0.333	0.615	0.410	0.496	0.727	0.517
Firm FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Panel B. Interaction with forecaster
Ln EPU	−3.188*	−0.198**	−19.91***	0.157***	−0.840***	−12.49***	−3.216***
Ln EPU	(1.787)	(0.0839)	(0.174)	(0.0120)	(0.0297)	(0.113)	(0.0281)
Forecaster	−32.77***	−0.919**	−0.198	−1.132***	−0.284***	1.160**	0.211
Forecaster	(8.724)	(0.394)	(0.711)	(0.138)	(0.0837)	(0.568)	(0.167)
lnEPU*Forecaster	6.730***	0.180**	−0.0335	0.211***	0.0177	−0.207*	−0.0180
lnEPU*Forecaster	(1.823)	(0.0815)	(0.155)	(0.0284)	(0.0176)	(0.123)	(0.0362)
Ln EPU_lag	4.475***	0.122*	18.64***	−0.766***	0.911***	12.71***	1.271***
Ln EPU_lag	(1.339)	(0.0652)	(0.110)	(0.00737)	(0.0197)	(0.0740)	(0.0107)
LnSize	−2.904***	0.000452	0.232***	0.0470***	−0.140***	0.429***	0.143***
LnSize	(0.356)	(0.0215)	(0.0412)	(0.00388)	(0.00690)	(0.0330)	(0.00952)
Leverage	0.126	−0.477***	1.934***	0.174***	0.0930***	1.520***	0.378***
Leverage	(1.631)	(0.127)	(0.163)	(0.0190)	(0.0333)	(0.122)	(0.0411)
MTB	0.254***	0.00385	0.0215***	0.00137***	0.000985	0.0146***	0.000523
MTB	(0.0555)	(0.00314)	(0.00453)	(0.000518)	(0.000739)	(0.00335)	(0.000868)
ROA	2.763	5.041***	−0.186	0.910***	0.110***	0.107	−0.0110
ROA	(1.867)	(0.139)	(0.126)	(0.0173)	(0.0316)	(0.0848)	(0.0297)
Cash Flow(OP)	0.144	−1.659***	−1.165***	−0.0202	0.137***	−1.042***	−0.165***
Cash Flow(OP)	(1.898)	(0.171)	(0.186)	(0.0219)	(0.0370)	(0.145)	(0.0475)
Cash Volatility	2.194***	−0.0403	−0.0274	0.0222***	−0.0141	−0.0381	−0.0606***
Cash Volatility	(0.662)	(0.0523)	(0.0568)	(0.00752)	(0.0133)	(0.0436)	(0.0182)
Sales Volatility	2.632*	0.158*	−0.866***	0.00338	−0.0582**	−0.637***	−0.00589
Sales Volatility	(1.469)	(0.0865)	(0.131)	(0.0151)	(0.0268)	(0.0985)	(0.0305)
INVZ	−0.150	0.0270***	−0.0312***	−0.00148	−0.0323***	0.000348	0.0108***
INVZ	(0.0947)	(0.00855)	(0.0116)	(0.00112)	(0.00218)	(0.0101)	(0.00318)
GDP Growth	−0.538**	0.0266***	1.828***	−0.0998***	−0.0701***	1.508***	−0.228***
GDP Growth	(0.209)	(0.00975)	(0.0108)	(0.00100)	(0.00204)	(0.00884)	(0.00205)
VIX	0.0524	0.00336	0.988***	−0.0143***	0.0260***	0.656***	0.0265***
VIX	(0.0604)	(0.00308)	(0.00574)	(0.000432)	(0.00122)	(0.00377)	(0.000964)
Constant	23.92***	−1.965***	−17.20***	3.880***	1.423***	−18.59***	8.207***
Constant	(5.402)	(0.281)	(0.545)	(0.0640)	(0.0821)	(0.458)	(0.115)
Observations	54,029	54,029	53,993	48,106	53,993	53,993	43,649
Adjusted R-squared	0.151	0.387	0.763	0.479	0.593	0.827	0.593
Firm FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Panel C. Interaction with number of forecasts
Ln EPU	−3.219*	−0.197**	−19.91***	0.164***	−0.854***	−12.48***	−3.196***
Ln EPU	(1.784)	(0.0834)	(0.174)	(0.0116)	(0.0297)	(0.112)	(0.0276)
Number of Forecasts	−19.16***	−0.524**	−0.102	−0.764***	−0.163***	0.701**	0.244**
Number of Forecasts	(5.522)	(0.227)	(0.437)	(0.0836)	(0.0526)	(0.350)	(0.102)
lnEPU*Number of Forecasts	4.059***	0.104**	−0.0293	0.140***	0.0157	−0.135*	−0.0409*
lnEPU*Number of Forecasts	(1.155)	(0.0467)	(0.0945)	(0.0171)	(0.0109)	(0.0747)	(0.0221)
Ln EPU_lag	4.526***	0.123*	18.64***	−0.768***	0.912***	12.71***	1.269***
Ln EPU_lag	(1.339)	(0.0652)	(0.110)	(0.00741)	(0.0197)	(0.0741)	(0.0107)
LnSize	−2.939***	−0.000132	0.233***	0.0485***	−0.141***	0.432***	0.145***
LnSize	(0.356)	(0.0216)	(0.0413)	(0.00389)	(0.00691)	(0.0330)	(0.00957)
Leverage	0.0982	−0.478***	1.937***	0.176***	0.0916***	1.523***	0.379***
Leverage	(1.632)	(0.127)	(0.163)	(0.0191)	(0.0333)	(0.122)	(0.0412)
MTB	0.255***	0.00388	0.0214***	0.00137***	0.00103	0.0145***	0.000492
MTB	(0.0555)	(0.00314)	(0.00453)	(0.000518)	(0.000740)	(0.00335)	(0.000871)
ROA	2.767	5.041***	−0.186	0.909***	0.110***	0.106	−0.0117
ROA	(1.867)	(0.139)	(0.126)	(0.0173)	(0.0316)	(0.0848)	(0.0297)
Cash Flow(OP)	0.143	−1.659***	−1.164***	−0.0204	0.139***	−1.043***	−0.167***
Cash Flow(OP)	(1.898)	(0.171)	(0.186)	(0.0219)	(0.0370)	(0.145)	(0.0476)
Cash Volatility	2.200***	−0.0401	−0.0270	0.0221***	−0.0135	−0.0387	−0.0608***
Cash Volatility	(0.662)	(0.0523)	(0.0568)	(0.00753)	(0.0132)	(0.0436)	(0.0182)
Sales Volatility	2.652*	0.158*	−0.868***	0.00239	−0.0576**	−0.639***	−0.00651
Sales Volatility	(1.469)	(0.0865)	(0.131)	(0.0151)	(0.0268)	(0.0985)	(0.0305)
INVZ	−0.152	0.0270***	−0.0311***	−0.00146	−0.0324***	0.000455	0.0108***
INVZ	(0.0947)	(0.00855)	(0.0117)	(0.00112)	(0.00218)	(0.0101)	(0.00318)
GDP Growth	−0.516**	0.0270***	1.827***	−0.101***	−0.0696***	1.507***	−0.229***
GDP Growth	(0.209)	(0.00975)	(0.0108)	(0.00101)	(0.00205)	(0.00885)	(0.00205)
VIX	0.0601	0.00351	0.988***	−0.0145***	0.0264***	0.655***	0.0262***
VIX	(0.0605)	(0.00308)	(0.00575)	(0.000433)	(0.00122)	(0.00377)	(0.000963)
Constant	23.64***	−1.981***	−17.22***	3.856***	1.472***	−18.64***	8.127***
Constant	(5.332)	(0.277)	(0.536)	(0.0620)	(0.0809)	(0.450)	(0.113)
Observations	54,029	54,029	53,993	48,106	53,993	53,993	43,649
Adjusted R-squared	0.151	0.387	0.763	0.480	0.592	0.827	0.593
Firm FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes

Note(s): The table reports the results of pooled ordinary least squares (OLS) regressions examining the relationship between Economic Policy Uncertainty (Ln EPU) and a range of alternative measures of earnings quality and potential earnings manipulation. The dependent variables include F-score (Column 1), M-score (Column 2), Absolute Accruals (Column 3), Accruals Quantity (Column 4), Abnormal Discretionary Expenses (Column 5), Abnormal Cash Flow from Operations (Column 6), and Abnormal Production Costs (Column 7). Panel A presents the baseline relationship between LnEPU and these alternative measures. Panel B and Panel C extend the analysis by including interaction terms to test the substitution effect. Panel B interacts LnEPU with Forecaster (a binary indicator), while Panel C interacts LnEPU with the Number of Forecasts (Frequency). All regressions control for the lagged EPU index (LnEPU_lag) to address potential omitted variable bias, along with a comprehensive set of firm-specific and market-related factors. Firm fixed effects (based on Gvkey) are included in all models, with the coefficients for firm fixed effects suppressed for brevity. All models include a constant term. Robust standard errors are presented in parentheses and are clustered at the establishment level. Symbols such as ∗∗∗, ∗∗, and ∗ denote statistical significance at the 1%, 5%, and 10% levels, respectively. All variables are defined in Appendix 1

Source(s): Authors’ own work

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