Reporting Concerns about Earnings Quality: An Examination of Corporate Managers

61 Pages Posted: 26 Nov 2016 Last revised: 29 Dec 2019

See all articles by Joseph F. Brazel

Joseph F. Brazel

North Carolina State University - Poole College of Management - Department of Accounting

Lorenzo Lucianetti

University of Chieti and Pescara

Tammie Rech Schaefer

University of Missouri at Kansas City

Multiple version iconThere are 2 versions of this paper

Date Written: December 28, 2019

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 directly influenced the decision to report internally, but not externally. Additional analyses document the important roles short-term personal costs, job tenure, and a non-accounting background play in the ethical dilemma managers face when deciding whether to report externally. Last, when pressure is low, we observe that CFOs are less apt to respond to red flags than other corporate managers (e.g., controllers, financial accounting managers).

Keywords: Earnings Management, Earnings Quality, Fraud, Red Flags, Reporting, Whistleblowing

JEL Classification: M41

Suggested Citation

Brazel, Joseph F. and Lucianetti, Lorenzo and Schaefer, Tammie Rech, Reporting Concerns about Earnings Quality: An Examination of Corporate Managers (December 28, 2019). Available at SSRN: https://ssrn.com/abstract=2874478 or http://dx.doi.org/10.2139/ssrn.2874478

Joseph F. Brazel (Contact Author)

North Carolina State University - Poole College of Management - Department of Accounting ( email )

Campus Box 8113
Nelson Hall
Raleigh, NC 27695
United States
919-513-1772 (Phone)

Lorenzo Lucianetti

University of Chieti and Pescara ( email )

Viale Pindaro 42
Pescara, 65127
Italy

Tammie Rech Schaefer

University of Missouri at Kansas City ( email )

5100 Rockhill Road
Kansas City, MO 64110-2499
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
187
Abstract Views
1,653
Rank
292,124
PlumX Metrics