Relationship between earnings management and media coverage of a company: corporate opportunism during the Covid-19 pandemic

The oversight potential of the business media has been recognised in the earnings management literature during the last decade. However, the COVID-19 pandemic changed the business media environment considerably. The primary objective of this research was to investigate the influence of the COVID-19 pandemic on the relationship between media coverage of a company and earnings management in the different stages of the pandemic. The research sample of Croatian non-financial listed companies in the period from 2018 to 2021 was used to estimate panel regression models. The modified Jones model was used to estimate the level of earnings management. In the times of the highest uncertainty, such as after the coronavirus outbreak and during the mandatory vaccination debate, the moderating influence of the pandemic on the relationship between negative media coverage and earnings management was positive, implying that negative media coverage was not effective in restraining earnings management during the pandemic. The findings indicate that companies anticipate the public impact of negative media coverage when applying earnings management techniques. More specifically, companies with negative publicity took advantage of the changed business media environment during the pandemic. Besides scientific implications, these findings also have practical implications for forensic accountants, auditors, and other experts responsible for the examination of financial statements, including business journalists. Future research should be conducted in countries with different media environments and more developed stock markets, as well as consider small or medium enterprises which, to the authors’ knowledge, were not examined in the context of the relationship between media coverage and earnings management.