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Ethical perceptions on earnings management

Author

Listed:
  • Ajit Dayanandan
  • Han Donker
  • Kui-Ying Lin

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.

Suggested Citation

  • Ajit Dayanandan & Han Donker & Kui-Ying Lin, 2012. "Ethical perceptions on earnings management," International Journal of Behavioural Accounting and Finance, Inderscience Enterprises Ltd, vol. 3(3/4), pages 163-187.
    • Handle: RePEc:ids:ijbeaf:v:3:y:2012:i:3/4:p:163-187
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    Cited by:

    1. Ashley Nicole West & Gary M. Fleischman, 2023. "The Roles of Cynicism, CFO Pressure, and Moral Disengagement on FIN 48 Earnings Management," Journal of Business Ethics, Springer, vol. 185(3), pages 545-562, July.
    2. Horvat Robert, 2018. "Impact of Selected Personality Traits on Accountants’ Attitudes Toward Accounts Manipulation: Evidence From Slovenia," Naše gospodarstvo/Our economy, Sciendo, vol. 64(3), pages 23-35, September.

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