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Research Paper sample - Preliminary Data Analysis and Reporting Plan-Qualitative Research Method-submit a preliminary qualitative data analysis and repo
Finance & Accounting
Pages 3 (753 words)
Earnings Management: The Continuum from Legitimacy to Fraud Name: Institution: Abstract Earning management is the reasonable and legal management decision making and reporting that is aimed at attaining stable and predictable financial results. Managers need to understand the effect of their accounting choices so that they can make the best financial decisions for their firms…
Introduction According to agency theory, managers may have personal goals that compete with the goal of the institution or company they are running. Due to the imperfect labor and capital markets top managers seek to maximize their utility at the expense of the company. The need to expand rapidly and gain recognition among the top managers can lead to the manipulations (Bowie and Freeman, 1992) of accounts and give false reports to the boards of directors and the public. The managers also sometimes manipulate accounts for the sake of cushioning the company earnings. In order to hide corrupt deals in the company the managers are also engaged in the vice. In addition to the above, top managers are likely to manipulate the accounting to create false perceptions among the interested individuals and other firms in order to expand (Mohanram and Bartov, 2004). Research on earnings management estimate that 8-12% of companies with small pre-managed earnings decreases manipulate earnings to achieve earnings increases and 30-44 percent of companies with small pre-managed losses manage earnings to create positive perception (Barth and Taylor, 2010). Many managers have however engaged in financial reporting fraud instead of the legitimate earnings management (Beneish, 1999). Study design. ...
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