Causal Attribution, Benefits Sharing, and Earnings Management

46 Pages Posted: 27 Oct 2021 Last revised: 16 Nov 2021

See all articles by Lukas J. Helikum

Lukas J. Helikum

New Jersey City University - School of Business

Hun-Tong Tan

Nanyang Business School, Nanyang Technological University

Tu Xu

Renmin University of China - School of Business; University of Hawaii at Manoa - Shidler College of Business

Date Written: October 27, 2021

Abstract

We conduct two experiments to examine the joint effect of two justification factors of earnings management, namely attribution for the firm’s underperformance and benefits accruing to other employees from inflating reported earnings. In the main experiment, we predict and find that managers are more likely to manage earnings when the firm’s underperformance is caused by an external event and misreported earnings benefit other employees besides the reporting manager. Further, we show that the extent to which participants use moral justifications mediates the effect of benefits sharing on earnings management, but only when causal attribution is external, and that it mediates the effect of causal attribution on earnings management, but only when benefits are shared. In the second experiment, we use a neutral control condition that makes no mention of causal attribution or benefits sharing to demonstrate that both justification factors jointly increase earnings management relative to what managers normally do in a situation without an explicit mention of either factor. We contribute to the accounting and psychology literature by proposing and testing a theory that explains how multiple justification factors interact to cause opportunistic behavior. Our results have important implications for practice.

Keywords: earnings management, causal attribution, benefits sharing, justifiability, fairness

Suggested Citation

Helikum, Lukas J. and Tan, Hun-Tong and Xu, Tu, Causal Attribution, Benefits Sharing, and Earnings Management (October 27, 2021). Available at SSRN: https://ssrn.com/abstract=3951261 or http://dx.doi.org/10.2139/ssrn.3951261

Lukas J. Helikum

New Jersey City University - School of Business ( email )

2039 Kennedy Boulevard
Jersey City, NJ 07305-1597
United States

Hun-Tong Tan (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore
+65 6790 4819 (Phone)
+65 6793 7956 (Fax)

Tu Xu

Renmin University of China - School of Business ( email )

Beijing
China

University of Hawaii at Manoa - Shidler College of Business ( email )

2404 Maile Way
Honolulu, HI 96822
United States

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