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Reporting Concerns About Earnings Quality: An Examination of Corporate Managers

Author

Listed:
  • Joseph F. Brazel

    (North Carolina State University)

  • Lorenzo Lucianetti

    (University of Chieti and Pescara)

  • Tammie J. Schaefer

    (University of Missouri-Kansas City)

Abstract

Using an experiment with corporate financial managers (e.g., CFOs, controllers), we find that when red flags are present in the financial statements under their review, managers identify those red flags and, in turn, have greater concerns over earnings quality. In addition, when pressure to meet a financial target is high, managers are more concerned about earnings quality when red flags are present. We also document that when red flags are present, managers are more likely to report both internally to their CEO and, if their concerns are not resolved internally, externally to their auditor. Pressure to meet a financial target increases the likelihood managers report internally, but decreases their likelihood of reporting externally when red flags are present. Additional analyses document reporting differences between CFOs and controllers, and examine the important roles that short-term personal costs, job tenure, and a non-accounting background play in the ethical dilemma managers face when deciding whether to report externally.

Suggested Citation

  • Joseph F. Brazel & Lorenzo Lucianetti & Tammie J. Schaefer, 2021. "Reporting Concerns About Earnings Quality: An Examination of Corporate Managers," Journal of Business Ethics, Springer, vol. 171(3), pages 435-457, July.
    • Handle: RePEc:kap:jbuset:v:171:y:2021:i:3:d:10.1007_s10551-020-04436-1
    DOI: 10.1007/s10551-020-04436-1
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    References listed on IDEAS

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    More about this item

    Keywords

    Earnings management; Earnings quality; Ethical dilemma; Fraud; Red flags; Reporting; Whistleblowing;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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