Political cost incentives for earnings management in the cable television industry

This study tests political costs theory by examining the cable television industry during periods of Congressional scrutiny. Earnings management is measured using discretionary accruals, and data are consistent with managerial incentives to mitigate the effects of political scrutiny and potential industry reregulation. Tests are also done using within-sample comparisons of firms. Firms for which proposed regulations are expected to be more harmful have greater income-decreasing accruals, and for some tests, firms for which cable television operations are more important have greater income-decreasing accruals. Test results are robust to the inclusion of control variables for firm performance and size.