Earnings Management and Impression Management
Posted: 30 Mar 2016
Date Written: March 30, 2016
Despite the increasing complexity and length of firm communication, little is known about how the quality of mandatory and voluntary disclosures relates to each other, or how the insiders that prepare these documents interact. In this paper, we examine the links between impression management in annual results press releases and accruals and real earnings management in the audited financial statements. We show that earnings management is positively associated with impression management. This indicates that firms engaging in self-serving disclosure practices may do so at several levels of firm communication, in an attempt to influence outsiders’ perceptions. However, our results suggest that scrutiny concerns and risk of detection moderate this association. We find that predicted levels of earnings management are more strongly associated with impression management than unpredicted levels of earnings management. Also, we observe a stronger association between impression management and unpredicted levels of real earnings management (less visible) than predicted accruals earnings management (more visible). We further show that this is influenced by the risk of detection.
Keywords: Impression management, annual results press releases, voluntary disclosure, accruals earnings management, real earnings management
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