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<p>Political uncertainty has long been recognized as a significant driver of corporate behavior, yet its impact on granular accounting decisions remains underexplored. This study investigates how U.S. gubernatorial elections—a source of localized political uncertainty—shape managerial judgment in financial reporting, particularly through changes in accounting estimates (CAEs). Using a comprehensive sample of U.S. firms from 2000 to 2022, we find that firms are significantly more likely to adopt income-decreasing CAEs in the year preceding gubernatorial elections, reflecting a conservative response to heightened political uncertainty. This effect is particularly pronounced among smaller firms, highly indebted firms and those operating in highly regulated industries. Revenue recognition estimates emerge as the primary channel for these adjustments. Post-election, firms partially reverse their conservative adjustments. This shift occurs once the election outcome is determined and the uncertainty surrounding it is resolved. Our results are robust to alternative measures of political uncertainty, model specifications, and fixed effects structures. Our findings contribute to the literature by demonstrating how political uncertainty influences specific accounting choices, offering new insights into the geographic and temporal dimensions of political influence on financial reporting. This study also provides practical implications for investors and regulators, highlighting the importance of considering political cycles when evaluating the quality of accounting estimates.</p>

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Accounting in the shadow of elections: how political uncertainty shapes managerial decisions

  • 期刊论文

  • 发表日期：

    2025年12月8日

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  • Hesham Yousef,
  • Mahmoud Ahmed Gad,
  • Mohammed Altantawy

摘要

Political uncertainty has long been recognized as a significant driver of corporate behavior, yet its impact on granular accounting decisions remains underexplored. This study investigates how U.S. gubernatorial elections—a source of localized political uncertainty—shape managerial judgment in financial reporting, particularly through changes in accounting estimates (CAEs). Using a comprehensive sample of U.S. firms from 2000 to 2022, we find that firms are significantly more likely to adopt income-decreasing CAEs in the year preceding gubernatorial elections, reflecting a conservative response to heightened political uncertainty. This effect is particularly pronounced among smaller firms, highly indebted firms and those operating in highly regulated industries. Revenue recognition estimates emerge as the primary channel for these adjustments. Post-election, firms partially reverse their conservative adjustments. This shift occurs once the election outcome is determined and the uncertainty surrounding it is resolved. Our results are robust to alternative measures of political uncertainty, model specifications, and fixed effects structures. Our findings contribute to the literature by demonstrating how political uncertainty influences specific accounting choices, offering new insights into the geographic and temporal dimensions of political influence on financial reporting. This study also provides practical implications for investors and regulators, highlighting the importance of considering political cycles when evaluating the quality of accounting estimates.