The Role Of Individual Attributes In Earnings Management Intention Decisions
Jones, Janet R.
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Much research has been conducted, at the firm level, to investigate the market effect of earnings management. However, there is a gap in the literature on individual attributes that may help to explain earnings management decisions. Of the research at individual level research that is available the focus is primarily on the motives of the Chief Executive Officer or top executive teams and not the Chief Financial Officer (CFO). The limited research focusing on the CFO has produced conflicting results with regard to the motivations and decisions of the CFO to engage in earnings management, this conflict in findings stems from two opposing perspective. First, a traditional view of earnings management would indicate that CFOs manage earnings to take advantage of a financial incentive, such as executive stock options, or to meet or beat analysts' forecasts to maintain stock values (Jiang, Petroni, & Wang, 2010). Second, an alternative view suggests that CFOs are pressured by the CEO to manipulate the earnings figures (Feng, Ge, Lu and Shevlin; 2011). This study attempts to address this gap and potentially offer some insight to clarify the conflicting perspectives by examining the influence of individual attributes (emotional intelligence, narcissism, and moral disengagement) on a CFO's intention to manage earnings. This research utilizes a behavioral design in order to add insight into the primary research questions, are individual attributes important factors in the decision of the CFO to manipulate earnings and when might this attribute be important? By investigating both motivations simultaneously, as well as to examine how the individual attributes of emotional intelligence, narcissism, and moral disengagement may alter the motivation and earnings management intentions relationship, this research seeks to resolve conflict in the field and provide a new perspective through which to examine earnings management decisions.Results of this investigation provide several key take-a-ways for research and practitioners concerned with earnings management decisions. Firstly, results indicated that motivations (i.e. financial pressure or CEO pressures) do not individually differ in their effect on earnings management intentions; both increase intentions to engage in earnings management. However, when combined the additive nature of multiple types of pressure result in a decrease of earnings management intentions. Secondly, the results of this investigation revealed that individual attributes do influence earnings management intentions, especially when the proposal is a GAAP violation. More specifically, if was found that emotional intelligence was negatively related and moral disengagement was positively related to earnings management intentions in situations that violate GAAP.