Managers’ tools to meet earnings management incentives

Kalash Jain and Doron Nissim

Chapter 4 in Handbook on the Financial Reporting Environment, 2025, pp 46-66 from Edward Elgar Publishing

Abstract: Earnings management involves actions by managers to influence reported financial results, often to present a more favorable view of company performance. In this chapter, we discuss the tools available to managers for earnings management. We first consider manipulation of net income through accruals and real earnings management. Then, we disaggregate earnings management along the income statement, comparing manipulation of revenue, expenses, and gains and losses. We next consider how managers can leave bottom-line earnings unchanged but instead engage in expectations management to meet or beat earnings forecasts. We also explain how managers can manipulate the market perception of the firm's performance through classification shifting and non-GAAP reporting. Finally, we conclude with a discussion of the trade-offs of these tools.

Keywords: Earnings management tools; Accruals management; Real earnings management; Expectations management; Classification shifting; Non-GAAP reporting (search for similar items in EconPapers)
Date: 2025
ISBN: 9781800888678
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