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The Management of Accounting Numbers: Case Study Evidence from the 'Crash' of an Airline

Accounting and Business Research, Vol. 40, No. 1, 2009

78 Pages Posted: 4 Dec 2009  

Ann Jorissen

University of Antwerp - Department of Accounting & Finance

David Otley

Lancaster University

Abstract

Financial misrepresentation has usually been analysed by large-scale empirical research. However the generality gained from such an approach is at the cost of understanding the rich and complex nature of financial misrepresentation in real organizations. We adopt a case study approach to gain more insight into the incentives, embedded in contracts, which trigger decisions to engage in financial misrepresentation and the underlying elements of discretion in these processes. In particular, we examine whether contractual incentives should be considered as endogenous or exogenous and we take a more integrated and dynamic perspective than is typical.

Our findings demonstrate that in order to understand the decision processes of real managers it is necessary to distinguish between negotiable and non-negotiable contracts of the firm. Using a multi-theory perspective we observe that the direction of the causation assumed in the agency framework (i.e. contracts influence behaviour) is often reversed in case of negotiable contracts (i.e. managers influence contracts). The case findings also provide insights into a number of additional variables which enlarge the discretion of a senior manager to engage in financial misrepresentation. The manipulation of accounting numbers can be achieved by many mechanisms which traditional methods based on accruals would not detect. The use of a wider range of research methods is therefore desirable.

Keywords: earnings management, accounting choices, corporate governance, executive compensation

JEL Classification: G34, M41, M43, M45, M49, G33

Suggested Citation

Jorissen, Ann and Otley, David, The Management of Accounting Numbers: Case Study Evidence from the 'Crash' of an Airline. Accounting and Business Research, Vol. 40, No. 1, 2009. Available at SSRN: https://ssrn.com/abstract=1517023

Ann Jorissen (Contact Author)

University of Antwerp - Department of Accounting & Finance ( email )

Prinsstraat 13
Antwerpen, B-2020
Belgium
00 32 3 220 40 92 (Phone)
00 32 3 220 40 64 (Fax)

David T. Otley

Lancaster University ( email )

The Management School
Lancaster LA1 4YF
United Kingdom
+441 524 593 632 (Phone)
+441 524 652 01 (Fax)

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