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Review of Quantitative Finance and Accounting

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01.04.2016 | Original Research

Earnings management in the electric utility industry: profit incentives

verfasst von: Shiyou Li, Emeka Nwaeze, Jennifer Yin

Erschienen in: Review of Quantitative Finance and Accounting | Ausgabe 3/2016

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Abstract

Electric utilities face profit regulation tied explicitly to accounting data. Under existing rate structure, the utilities are required to provide periodic and specialized accounting reports for use in rate decisions. Consumer groups and opponents often criticize the rate structure alleging possible alteration of accounting reports by utilities to gain favorable regulation. Nonetheless, there is little empirical evidence supporting the allegation. This study investigates profit incentives for earnings management by utilities seeking rate increases. Specifically, this study investigates whether electric utilities proactively adopt profit-reducing actions before and during rate requests. The results are consistent with strategic use of accounting methods to reduce reported profits immediately before and during rate requests. The evidence supports the notion that utilities reduce profits just before and during rate reviews to relax regulatory constraints and improve profit opportunities.

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Titel: Earnings management in the electric utility industry: profit incentives
verfasst von: Shiyou Li
Emeka Nwaeze
Jennifer Yin
Publikationsdatum: 01.04.2016
Verlag: Springer US
Erschienen in: Review of Quantitative Finance and Accounting / Ausgabe 3/2016
Print ISSN: 0924-865X
Elektronische ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-014-0481-1

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