Abstract
M.Com. (International Accounting)
This study investigated the political cost hypothesis in the South African construction industry during periods of political scrutiny (event period). Specifically, it investigated whether JSE listed construction firms used earnings-decreasing accruals to manage earnings in order to reduce political visibility and associated costs during the Competition Commission’s investigations.
It tested the political cost hypothesis for the full industry, for the large and mid-cap firms and for the firms fined by the Competition Commission. The discretionary component of total accruals was used as proxy for earnings management – calculated by using the Modified Jones Model.
It was found that, in the event period, no earnings-decreasing discretionary accruals could be detected for the full industry and the large-mid cap firms. However, there were earnings-decreasing accruals for firms fined by the Competition Commission although the results were not statistically significant.