Literature earnings management aims to determine what causes/motivates managers to disclose earnings close to zero and to use this as an instrument to influence users' decisions. However, limited research has been carried out on this subject in the public sector. Therefore, the main purpose of this paper is to evaluate whether local politicians (in Portuguese municipalities), aiming to demonstrate their high level of competence and skills, engage in earnings management in such a way as to ensure that earnings are positive but close to zero. We examined whether political competition is a determining factor of earnings management close to zero and if managers use discretionary accruals in order to do this. Results indicate that, in order to report positive net earnings close to zero, discretionary accruals are used. This study identified the overriding tendency to avoid the reporting of losses in those municipalities where political competition is greatest. Key wordsPublic accounting, agency theory, public choice theory, earnings management, municipalities, political competition 2013 Taylor & Francis Vol. 15, No. , -, http://dx

PurposeThe main purpose of this paper is to evaluate if, motivated by political competition, municipalities engage in earnings management practices through discretionary accruals.Design/methodology/approachQuantitative methodology.FindingsResults indicate that, in those municipalities where political competition is greatest, there is a greater tendency to report positive net earnings close to zero. This study also indicates that for such purpose, discretionary accruals are used.Originality/valueThe purpose of this paper is to respond to the lack of information in the area of earnings management in the public sector, to be able to evaluate responsibility, performance and efficiency regarding the allocation of public resources and the degree of satisfaction of citizens/voters' needs-accountability.