Does geopolitical risk drive earnings management? Evidence from low- and middle-income countries

Abstract

We examine the impact of geopolitical risk (GPR) on earnings management (EM) in low- and middle-income countries (LMICs). Using 257,659 firm-year observations from 16 LMICs (2002-2022) and System Generalized Method of Moments (System-GMM) estimations, we find that GPR significantly increases EM, especially under weak audit quality, low development, and high taxation. While EM buffers short-term shocks, it undermines transparency, underscoring the need for stronger institutions.Publisher versio