Regulation and the Interdependent Roles of Managers, Auditors, and Directors in Earnings Management and Accounting Choice

Abstract

In this paper, we examine the growing number of behavioral studies of how financial reporting, auditing, and other corporate governance regulations affect earnings management and accounting choice-related decisions of managers, auditors, and directors. We first describe how experimental and survey studies can add unique insights into our understanding of earnings management and accounting choice. We then organize our review of the literature by the type of regulation (financial reporting, auditing, or corporate governance) and secondarily by which of the three parties are affected. Finally, we point out useful directions for future research and discuss key methodological choices faced by those who will conduct that future research.

Keywords: earnings management, earnings quality, accounting choice, financial reporting, auditing, corporate governance, experimental design, surveys, regulation

JEL Classification: C90, M40, M41, G38