Financial reporting misconduct: Evidence from the field

Moty Amar, Ester Chen, Ilanit Gavious, Hagit Weihs

Research output: Contribution to journalArticlepeer-review

Abstract

Earnings management occurs when managers deliberately bias the company's reported earnings to favor their interests. We present evidence of myopia in earnings management. Using analyses of quantitative financial data as well as qualitative data capturing the views of Chief Financial Officers (CFOs), we show that CFOs tend to focus on the short-term where they find earnings management beneficial to both the company and themselves. Due to pressure to meet financial performance targets, these managers engage in earnings management despite being aware of the potential long-term deleterious impact on the company. They are also aware that initial engagement will likely lead to a slippery slope of continuous engagement in earnings management. Nevertheless, earnings management is pervasive. The evidence of myopic engagement in earnings management is important given the risk of slipping into fraudulent financial reporting, which can cause significant damage to organizations and individuals, including the perpetrator.

Original languageEnglish
Article number102540
JournalFinance Research Letters
DOIs
StateAccepted/In press - 1 Jan 2021

Keywords

  • Earnings management
  • Financial fraud
  • Financial reporting misconduct
  • G3
  • G4
  • JEL classification
  • M4
  • Slippery slope effect

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