Ethical perceptions on earnings management

Ajit Dayanandan, Han Donker and Kui-Ying Lin

International Journal of Behavioural Accounting and Finance, 2012, vol. 3, issue 3/4, 163-187

Abstract: The study examines the relationship between ethical values (idealism, relativism) and personality traits (Machiavellianism, locus of control) on decision-making of individuals and their perception on earnings management practices. Based on a survey of advanced auditing students in Canada, the study finds statistically significant empirical evidence that individuals with high idealism judge earnings management more harshly than individuals who exhibit low idealism. In addition, we demonstrate that situationists (high idealism and high relativism) consider earnings management as more unethical. The study also provides statistically significant empirical evidence that people judge accounting manipulation as more unethical than operating manipulation. The results are even more profound when earnings management decisions are inconsistent with GAAP. We find no empirical evidence with respect to Machiavellianism and locus of control in decision-making on earnings management practices. The implication of our findings is that ethical perceptions are dominant in decision-making on earnings management instead of personal characteristics.

Keywords: earnings management; ethical perceptions; idealism; relativism; Machiavellianism; locus of control; ethics; personality traits; auditing students; Canada; accounting manipulation; operating manipulation; decision making; personal characteristics. (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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