Political drivers of accounting discretion in local governments: evidence from Spain
Sebastián López-Estrada, Diego Prior, Isabel Narbón-PerpiñáPurpose
This article examines the presence of earnings management in Spanish local governments and analyzes how political party characteristics and mayoral attributes influence discretionary accounting behavior.
Design/methodology/approach
Using a balanced panel of 3,190 Spanish municipalities (2016–2018), the study applies a one-stage modified Jones model that incorporates political variables directly into the accruals estimation. A Mundlak-type correction is used to address time-invariant effects.
Findings
The results reveal systematic earnings management, particularly around small positive results. Political concentration and alignment with regional governments increase discretionary accruals. Higher mayoral salaries reduce manipulation, while full-time dedication increases it, although higher wages mitigate this effect for full-time mayors.
Originality/value
The study advances public-sector accounting research by jointly examining party- and individual-level political incentives and by applying a robust one-stage methodological approach to a novel institutional setting.