Abstract
We test the political cost hypothesis using local soldier fatalities as a source of as-if-random variation in the threat of political costs for local defense firms. Soldier fatalities vary the threat of political costs for defense firms because the U.S. tradition of shared sacrifice during war vulgarizes war profits amid dead soldiers. Local defense firms record more income-decreasing accruals, equal to 1.17 percent of total assets, in response to a one standard deviation increase in local soldier fatalities (an additional 29 soldier fatalities in the average state-year). A wide variety of robustness tests corroborate our inferences.
Original language | English (US) |
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Article number | 101316 |
Journal | Journal of Accounting and Economics |
Volume | 70 |
Issue number | 1 |
DOIs | |
State | Published - Aug 2020 |
Keywords
- Earnings management
- Political cost hypothesis
- Proximate casualties hypothesis
- War profiteers
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics