The effects of creative culture on real earnings management

Van der Stede, Wim A. ORCID: 0000-0003-3005-2410 (2021) The effects of creative culture on real earnings management. Contemporary Accounting Research, 37 (4). pp. 2319-2356. ISSN 0823-9150

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Abstract

Creativity and innovation have been identified by senior executives as some of the most desired characteristics of corporate culture. Accordingly, managers strive to build these cultures within their organizations. However, research in psychology suggests that these attempts may have unintended negative consequences. In this study, I predict and find that managers in a more (versus less) innovative company culture will engage in higher levels of real earnings management (REM). I then test two construal level theory (CLT)-based interventions designed to reduce REM. As I predict, I find that in more innovative corporate cultures an intervention that makes downside risk more salient reduces REM, but an intervention that encourages managers to consider the “big-picture” impact of their decision reduces REM to a greater extent. Unexpectedly, I also find that the effect of the “big-picture” intervention reverses in a less innovative corporate culture leading to an increase in REM. My findings contribute to the emerging accounting literature regarding REM. I also extend the psychology literature investigating the link between opportunistic behavior and creativity, and I also expand research into how interventions based on CLT can affect judgment and decision making in an accounting context.

Item Type:	Article
Official URL:	https://onlinelibrary.wiley.com/journal/19113846
Additional Information:	© 2020 John Wiley and Sons
Divisions:	Accounting
Subjects:	H Social Sciences > HF Commerce > HF5601 Accounting H Social Sciences > HD Industries. Land use. Labor
Date Deposited:	20 Apr 2020 08:39
Last Modified:	22 Nov 2024 05:57
URI:	http://eprints.lse.ac.uk/id/eprint/104088

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