Management Accounting and Control Systems and Earnings Management: Effects on Future Firm Performance

50 Pages Posted: 16 Sep 2019

See all articles by Beatriz Garcia Osma

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration

Jacobo Gomez-Conde

Universidad Autonoma de Madrid

Ernesto Lopez-Valeiras

University of Vigo

Date Written: September 6, 2019

Abstract

Managers use management accounting and control systems (MACS) to monitor and detect deviations from earnings targets. In this paper, we examine an unexplored bright side of MACS: its effects on earnings management. We argue that managers interactively use MACS to focus the attention of the whole organization in designing and implementing action plans to bridge the gap between current and target earnings. These actions emerge linked to earnings pressures and aim to push earnings towards their pre-established critical values, i.e., they constitute real earnings management actions. We propose that interactive MACS use promotes efficient real earnings management actions that help to terminate unprofitable ventures and focus on strategic objectives, leading to higher future firm performance. We test our research model empirically with survey and archival data. The results support the theoretical model.

Keywords: Real Earnings Management, Management Accounting and Control Systems, Interactive Use, Levers of Control, Boundary Systems

JEL Classification: M41

Suggested Citation

Garcia Osma, Beatriz and Gomez-Conde, Jacobo and Lopez-Valeiras, Ernesto, Management Accounting and Control Systems and Earnings Management: Effects on Future Firm Performance (September 6, 2019). Available at SSRN: https://ssrn.com/abstract=3449178 or http://dx.doi.org/10.2139/ssrn.3449178

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

Jacobo Gomez-Conde (Contact Author)

Universidad Autonoma de Madrid ( email )

Campus de Cantoblanco
Madrid, 28049
Spain

Ernesto Lopez-Valeiras

University of Vigo ( email )

Business and Tourism Faculty
Ourense, Ourense E-32004
Spain

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