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: Viveksarati Sandrasigaran, Jalila Binti Johari, 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/994

This study is an empirical examination on the relationship between oil price volatility and earnings management in the oil and gas industry, moderated by price-setting abilities of OPEC (Organization of Petroleum Exporting Nations) and price taking abilities of Non-OPEC countries. This study tests discretionary, income-decreasing, current and non-current accruals as a proxy of earnings management. A total sample of 209 firm-year observations from 2008 to 2018 of listed oil and gas firm is collected from the Thomson Datastream database. To incorporate the moderation effect, the samples were divided into two sub-groups, OPEC and Non-OPEC using reserve to production ratio.  Firm attributes are included in the analysis as the constant variable such as leverage, current ratio, EBITDA and Growth. The initial results show that, overall, the interaction effect between OPEC/Non-OPEC and oil price volatility is positive and significant to discretionary and income-decreasing accruals. Data samples are limited while comparing OPEC and Non-OPEC countries as not every oil and gas company in OPEC are listed companies and their information is heavily protected. This study contributes to extant earnings management literature regarding political cost, which remains a significant concern to oil and gas companies worldwide.