Earnings management: Who do managers consider and what is the relative importance of ethics?

Paul Coram, James R. Frederickson and Matthew Pinnuck
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Paul Coram: The University of Adelaide, Adelaide, SA, Australia
James R. Frederickson: Melbourne Business School, Melbourne, VIC, Australia
Matthew Pinnuck: The University of Melbourne, Melbourne, VIC, Australia

Australian Journal of Management, 2024, vol. 49, issue 2, 214-248

Abstract: Using responses from Australian CFOs and CEOs to a case-based survey and interviews, we provide insights into managers’ earnings management (EM) decisions. Ethics has the greatest explanatory power for our participants’ EM assessments. Ethical concerns about EM deter EM, but surprisingly, ethical concerns about not managing earnings and missing market expectations motivate EM. The primary economic motivation for EM is shielding current shareholders from the short-term costs of missing market expectations. We find considerable heterogeneity regarding the extent to which CFOs and CEOs believe EM is lying. Finally, CFOs and CEOs believe that each are significantly involved in initiating EM. JEL Classification: M40, M41, M48

Keywords: Earnings management; ethics; real earnings management (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:49:y:2024:i:2:p:214-248

DOI: 10.1177/03128962221137235

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