Why Do Some Senior Managers Inflate Firms’ Reported Earnings? Economic Causes and Potential Solutions

Kostyuk. A. Why Do Some Senior Managers Inflate Firms’ Reported Earnings? Economic Causes And Potential Solutions / V.G. Sridharan, F. Navissi, A. Kostyuk // Corporate Ownership and Control. Volume 5, Issue 1, Fall 2007, continued 3. P. 415-432.

Posted: 23 Dec 2014

See all articles by Alexander Kostyuk

Alexander Kostyuk

National Bank of Ukraine - Ukrainian Academy of Banking of the National Bank of Ukraine

V.G. Sridharan

Deakin University

Farshid Navissi

Monash University

Date Written: September 23, 2007

Abstract

We examine the economic reasons underlying the behavior of some senior managers to inflate their firms’ reported earnings. While the extant literature cites accounting and corporate governance structure as potential reasons that facilitate the inflating tendency, we conjecture that opportunism at different hierarchical levels within firms do not leave much scope for some senior managers to improve firms’ fundamental performance. To protect their personal utility, they resort to inflating tendency, but only if the firms’ corporate governance has loopholes. A major solution offered here is to improve firms’ internal management control system which could reduce within-firm opportunism. However, this solution must accompany improvements to corporate governance.

Keywords: earnings, managers, corporate governance

Suggested Citation

Kostyuk, Alexander and Sridharan, V.G. and Navissi, Farshid, Why Do Some Senior Managers Inflate Firms’ Reported Earnings? Economic Causes and Potential Solutions (September 23, 2007). Kostyuk. A. Why Do Some Senior Managers Inflate Firms’ Reported Earnings? Economic Causes And Potential Solutions / V.G. Sridharan, F. Navissi, A. Kostyuk // Corporate Ownership and Control. Volume 5, Issue 1, Fall 2007, continued 3. P. 415-432., Available at SSRN: https://ssrn.com/abstract=2542081

Alexander Kostyuk (Contact Author)

National Bank of Ukraine - Ukrainian Academy of Banking of the National Bank of Ukraine ( email )

57, Petropavlivska str.
Sumy, 40030
Ukraine

V.G. Sridharan

Deakin University ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

Farshid Navissi

Monash University ( email )

Building H, Caulfield Campus
Melbourne, Victoria 3142 Vic 3145
Australia
+61 405 664941 (Phone)

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