POLITICAL COSTS AND EARNINGS MANAGEMENT OF OIL COMPANIES DURING THE 1990 PERSIAN-GULF CRISIS

This study investigates whether firms that expect increases in earning s resulting from sudden product price increases use accounting accrual s to reduce earnings and, thus, political sensitivity. Specifically, o il firms' accruals are analyzed in a period of rapid gasoline price in creases during the 1990 Persian Gulf crisis. Our results show that oil firms that expected to profit from the crisis used accruals to reduce their reported quarterly earnings during the Gulf crisis. In contrast to previous research, we find that the tendency to release good earni ngs news early, documented in prior research, is reversed for oil firm s during the Gulf crisis. This finding suggests that the benefit of di sclosing ''good news'' (i.e., earnings increases) early may have been outweighed by the political costs associated with timely releases of t he information.