Could an unconventional monetary policy have impact on firms' earnings management? The case of ECB's corporate sector purchase program

Purpose The purpose of this paper is to investigate the effect of the European Central Bank's Corporate Sector Purchase Program (CSPP) on the earnings-management practices of firms that issued eligible debt after 10 March 2016 and those that were finally targeted, under the Program. Design/methodology/approach The sample consists of 139 firms that issued CSPP-eligible debt, from 2013Q1, one year after the end of the European sovereign debt crisis, to 2019Q4, the quarter prior to the outbreak of the COVID-19 pandemic. We adopt the modified-Jones model as our baseline model to estimate the discretionary accruals. Findings Upward earnings management of firms that issued eligible debt, as well as of those whose securities were targeted, is constrained after the announcement of the Corporate Sector Purchase Program (March 10, 2016), especially in the quarters when asset purchases' volume was larger. Moreover, we provide some evidence that this tendency is more pronounced in firms with ultimate parents residing and listed in the euro area. We attribute these results to the easing of financing conditions, the reduction of the cost of capital and the boost of liquidity. Originality/value This paper is unique in examining the effects of corporate Quantitative Easing on earnings management.