Causal Attribution, Benefits Sharing, and Earnings Management

Posted: 1 Mar 2022

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

Multiple version iconThere are 2 versions of this paper

Date Written: December 30, 2021

Abstract

We conduct two experiments to investigate 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. This investigation is important because prior research examines the effects of individual justification factors, whereas real-world settings entail more complexity involving multiple justification factors. In Experiment 1, 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 Experiment 2, we use a neutral control condition that makes no mention of inconsistent incentives to demonstrate that it is the combination of causal attribution and benefits sharing that triggers earnings management. 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 suggest that policy-makers and governing parties should consider developing a holistic view of possible justification factors, focusing on situational opportunities created by combinations of factors rather than individual factors alone.

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 (December 30, 2021). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4003026

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
68
PlumX Metrics