Journal of Business Accounting and Finance Perspectives

(ISSN: 2603 7475) Open Access Journal
JBAFP 2020, 2(1), 2; doi: 10.35995/jbafp2010002

Career concerns and earnings management

Received: 27 Aug 2019 / Accepted: 2020-02-06 / Published: 2020-02-10
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ABSTRACT

Motivated by the disconnect between survey evidence documenting that executives prioritize implicit contracting (i.e., labor market-based career concerns) when making earnings management decisions (Graham et al., 2005) and the extant literature’s focus on explicit contracting to explain earnings manipulation, we analytically examine the role of managerial career concerns in earnings management. Building on Holmstrom (1982, 1999), we present a career concerns-based earnings management model that incorporates the unique reversing nature of earnings management. A key insight derived from the model is that whether the predictions of a traditional career concerns model prevail, which is to say that managers engage in more income-increasing behavior in their early years, critically depends upon the reversal characteristics of the earnings management vehicle chosen.
Keywords: earnings management; career concerns; accruals and real activities management; accruals reversal; reversal of earnings management
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
CITE
Demers, E.; Wang, C. Career concerns and earnings management. JBAFP 2020, 2, 2.
Demers E, Wang C. Career concerns and earnings management. Journal of Business Accounting and Finance Perspectives. 2020; 2(1):2.
Demers, Elizabeth; Wang, Chong. 2020. "Career concerns and earnings management." JBAFP 2, no. 1: 2.
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