The Effects of Creative Culture on Real Earnings Management

60 Pages Posted: 7 Aug 2016 Last revised: 28 Sep 2018

See all articles by Ryan Guggenmos

Ryan Guggenmos

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: September 21, 2018

Abstract

Creativity and innovation have been identified by senior executives as some of the most desired characteristics of corporate culture. Accordingly, managers strive to build these cultures within their organizations. However, research in psychology suggests that these attempts may have unintended negative consequences. In this study, I predict that a more innovative company culture will lead managers to engage in higher levels of opportunistic real earnings management (REM) behavior. I first demonstrate this effect. I then test two construal-level theory-based interventions designed to reduce REM behaviors. As I predict, I find that in more innovative corporate cultures an intervention that makes the downside risk of managers’ decisions more salient reduces REM, but an intervention that encourages managers to consider the “big-picture” impact of their decision reduces REM to a greater extent. I also find that the effect of these interventions reverses in less innovative corporate cultures. My findings contribute to the emerging accounting literature regarding REM. I also extend the psychology literature investigating the link between opportunistic behavior and creativity, as well as expand research into how interventions based on construal-level theory can affect judgment and decision making in an accounting context.

Keywords: Creativity, Innovation, Real Earnings Management, Financial Reporting, Construal Level Theory

JEL Classification: M14, M41, O30

Suggested Citation

Guggenmos, Ryan, The Effects of Creative Culture on Real Earnings Management (September 21, 2018). Available at SSRN: https://ssrn.com/abstract=2818499 or http://dx.doi.org/10.2139/ssrn.2818499

Ryan Guggenmos (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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