Hang YUE

Composition of the Jury

Abstract

This thesis focuses on identifying the role of earnings management in farm management. The first study examines the extent to which farms engage in earnings management to improve their access to financing. Farms rely heavily on bank loans for their development. However, little is known about their ability to manipulate their earnings to increase their chances of obtaining a loan. The detection and measurement of earnings management rely on two accrual accounting models commonly used in the literature: the modified Jones model and the performance-matching model. We use data from the Farm Accountancy Data Network (FADN), which is representative of professional French farms over the period 2000–2021. We estimate two panel data models—one using logit models and the other using generalized method of moments (GMM) models—to explain the effect of earnings management on farms’ access to credit. We show that this strategy allows them to increase their borrowing capacity while reducing their borrowing costs.

The second study examines the short- and long-term impacts of climate change on farm profit management practices. Farm profits are highly sensitive to increased weather volatility, and farmers adopt various strategies to mitigate the negative impacts of climate risk. While technical risk management practices (diversification, irrigation) and financial risk management practices (crop insurance) have been studied in the literature, little is known about the impact of climate-related threats on farms’ accounting decisions and profit management. We identify and measure profit management using the modified Jones model. We use accounting data from the FADN. A series of regressions explains the long-term effect of temperature and precipitation deviations on profit management and further examines the impact of adverse weather conditions on this management. The results clearly show that, in both the short and long term, weather- and climate-related sources of risk lead to a significant strategy of conserving profits: hot and dry annual conditions, the occurrence of a natural disaster, and deviations from long-term trends in temperature and precipitation. Farmers therefore incorporate the effects of climate and weather conditions into their accounting decisions, likely with the aim of increasing their resilience in the face of these structural changes.

The third study takes into account the distinctive characteristics of farms and uses four different perspectives to analyze agricultural accounting practices and their impact on farms’ financial performance. Faced with yield and price risks as well as climate-related uncertainties, farms have strong incentives to manipulate their profits. We identify and measure accounting practices across four different dimensions: abnormal accruals, persistence, regularity, and responsiveness. We examine their impact on farm performance, measured by return on assets and free cash flow relative to total assets. We use data from the FADN. Our results show that, on average, regardless of the year or specialization, farms tend to manipulate their profits, which negatively affects their performance.