Elections and Discretionary Accruals: Evidence from 2004
K A RT H I K RAMANNA  AND S U G ATA ROYCHOWDHURY
Received 31 March 2008; accepted 9 December 2009
ABSTRACT
We examine the accrual choices of outsourcing firms with links to U.S. congressional
candidates during the 2004 elections, when corporate outsourcing
was a major campaign issue. We find that politically connected firms with
more extensive outsourcing activities have more income-decreasing discretionary
accruals. Further, relative to adjacent periods, the evidence is concentrated
in the two calendar quarters immediately preceding the 2004 election,
consistent with heightened incentives for firms to manage earnings during
the election season. The incentives can be attributed to donor firms’ concerns
about the potentially negative consequences of scrutiny over outsourcing for
themselves and for their affiliated candidates.