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Real Earnings Management in Sales

34 Pages Posted: 16 Jul 2016 Last revised: 24 Nov 2016

Michael Ahearne

University of Houston - C.T. Bauer College of Business

Jeffrey Patrick Boichuk

University of Virginia - McIntire School of Commerce

Craig J. Chapman

Northwestern University - Kellogg School of Management

Thomas J. Steenburgh

University of Virginia - Darden Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 21, 2016

Abstract

We surveyed 1,638 sales executives across 40 countries regarding their companies’ likelihood of asking sales to perform real earnings management (REM)actions when earnings pressure exists. Using this information, which we refer to as companies’ REM propensities, we study how company characteristics and environmental conditions relate to the responses received. The use of cash-flow incentives for sales personnel and the distribution of interfunctional power in favor of finance rather than sales are both associated with companies’ REM propensities. In addition, we show that sales executives preemptively change their behaviors in anticipation of top management’s REM requests. Sales executives working for public companies and companies in the United States reported higher levels of REM propensity. The data also support an association between REM propensity and finance–sales conflict.These findings and others are compared and contrasted with existing empirical and survey-based research on REM throughout the paper.

Keywords: financial accounting, disclosure, incentives, transparency, earnings management

Suggested Citation

Ahearne, Michael and Boichuk, Jeffrey Patrick and Chapman, Craig J. and Steenburgh, Thomas J., Real Earnings Management in Sales (October 21, 2016). Journal of Accounting Research, Vol. 54, No. 5, 2016. Available at SSRN: https://ssrn.com/abstract=2810356 or http://dx.doi.org/10.2139/ssrn.2810356

Michael Ahearne

University of Houston - C.T. Bauer College of Business ( email )

334 Melcher Hall
Houston, TX 77204-6021
United States
713-743-4155 (Phone)
713-743-4572 (Fax)

HOME PAGE: http://www.bauer.uh.edu/Directory/profile.asp?firstname=Michael&lastname=Ahearne

Jeffrey Patrick Boichuk

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

Craig J. Chapman (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Jacobs Center 6227
Evanston, IL 60208
United States
8474912662 (Phone)
8474671202 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu

Thomas J. Steenburgh

University of Virginia - Darden Graduate School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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