Selling to the State: Public Procurement and Discretionary Accruals - Evidence on accrual-based earnings management among Swedish firms

Sammanfattning

This study examines whether Swedish public procurement suppliers exhibit systematically different accrual-based earnings management compared to non-suppliers. Drawing on political cost theory and the Swedish Public Procurement Act (LOU), we estimate discretionary accruals via the performance-adjusted Modified Jones model using approximately 480,000 firm-year observations over 2021-2023. Suppliers exhibit lower absolute discretionary accruals, though this result is sensitive to winsorization. Contrary to political cost theory, suppliers display a significant positive association with signed discretionary accruals, reflecting less extreme negative accruals rather than higher positive ones. Results are mostly robust across alternative specifications, though the cross-sectional design precludes important endogeneity tests and the findings should be interpreted with caution.