Management Accounting and Control Systems and Earnings Management: Effects on Future Firm Performance
50 Pages Posted: 16 Sep 2019
Date Written: September 6, 2019
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: Suggested Citation