Defence Contracting and Accrual‐Based Earnings Management

Accounting and Finance 2026 Open access

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Authors: Francisco José Callado‐Muñoz, Juan Pedro Sánchez‐Ballesta, Natalia Utrero‐González, José Yagüe
DOI: 10.1111/acfi.70190
Cited by: 1
References: 49

Abstract

ABSTRACT We examine accrual‐based earnings management in Spanish defence firms in 2011–2020, using a unique database from the Spanish Ministry of Defence. We find higher levels of accrual‐based earnings management and lower accrual quality in firms where defence contracts represent a high proportion of their total sales. Defence contractors manage earnings upwards under financial constraints and downwards when profitability is high. These findings suggest that defence firms may strategically manage earnings to enhance financial image or reduce visibility. Distinguishing among current defence suppliers, potential suppliers, and nondefence firms, we show that earnings management occurs specifically in years with defence sales.

Fields of Study & Subjects

Auditing Earnings Management Governance Defense Military and Policy Studies Corporate Governance and Financial Management

Publication details

Journal / source
Accounting and Finance
Publisher
Wiley
Volume
66
Issue
2
Pages
1717–1737
Publication date
11 February 2026
Language
EN