Organization Identity and Earnings Manipulation

Posted: 5 May 2017 Last revised: 8 Jun 2017

See all articles by Margaret A. Abernethy

Margaret A. Abernethy

University of Melbourne, Department of Accounting

Jan Bouwens

Amsterdam Business School

Peter Kroos

University of Amsterdam - Amsterdam Business School

Date Written: May 5, 2017

Abstract

Management scholars are beginning to provide empirical evidence that organization identity (OI) can be a powerful means of reducing agency costs. We examine whether an individual’s identity with the firm influences the agency costs associated with incentive contracts, namely earnings manipulation. Based on OI theory, we expect that managers who identify with the firm gain utility by taking actions that in their view benefits the firm, and experience disutility from taking actions that are harmful to the firm. Drawing on a third-party survey database, we find that performance-based compensation is associated with higher levels of earnings manipulation. Importantly, we also find that managers with incentive-based compensation engage in lower levels of opportunistic earnings manipulation when they identify with the firm.

Keywords: organization identity, incentives, earnings manipulation

JEL Classification: M10, M12, M14, M41, M55

Suggested Citation

Abernethy, Margaret A. and Bouwens, Jan and Kroos, Peter, Organization Identity and Earnings Manipulation (May 5, 2017). Accounting, Organizations and Society, 58 (2017), 1-14. Available at SSRN: https://ssrn.com/abstract=2963475

Margaret A. Abernethy

University of Melbourne, Department of Accounting ( email )

Victoria
Melbourne, Victoria 3010 3010
Australia
+61 3 8344 7655 (Phone)
+61 3 9349 2397 (Fax)

Jan Bouwens (Contact Author)

Amsterdam Business School ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 5258740 (Phone)

Peter Kroos

University of Amsterdam - Amsterdam Business School ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands

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