The Moderating Effect of OPEC and Non-OPEC on the Relationship Between Oil Price Volatility and Accrual Earnings Management in the Oil and Gas Industry

• Main Authors: Jalila Binti Johari, Viveksarati Sandrasigaran, Soh Wei Ni, Bany-Ariffin A.N
• Format: Article
• Language: English
• Published: CSRC Publishing 2020-03-01
• Series: Journal of Accounting and Finance in Emerging Economies
• Subjects: Political costs; Price Setter; Price taker; Oil Price Volatility; Accrual Earnings Management
• Online Access: https://publishing.globalcsrc.org/ojs/index.php/jafee/article/view/1082

Objective: This study is an empirical examination on the relationship between oil price volatility and earnings management in the oil and gas industry, moderated by dominant-firm, OPEC (Organization of Petroleum Exporting Nations), and fringe competition of Non-OPEC countries. This study tests current and non-current accruals as the proxy of accrual earnings management. Methodology: A total sample of 209 firm-year observations from 2008 to 2018 of listed oil and gas firm collected from the Thomson Datastream database. To proxy the moderation effect, the samples divided into two sub-groups, OPEC and Non-OPEC.  Results: The initial results show that, overall, the interaction effect between OPEC/Non-OPEC and oil price volatility is significant to discretionary and income-decreasing discretionary accrual. Implication: This study contributes to existing earnings management literature regarding political cost, which remains a significant concern to oil and gas companies worldwide.