Title: Ethical perceptions on earnings management

Authors: Ajit Dayanandan; Han Donker; Kui-Ying Lin

Addresses: Economics Program, University of Northern British Columbia, 3333 University Way, Prince George, V2N 4Z9, British Columbia, Canada ' School of Business, University of Northern British Columbia, 3333 University Way, Prince George, V2N 4Z9, British Columbia, Canada ' School of Business, University of Northern British Columbia, 3333 University Way, Prince George, V2N 4Z9, British Columbia, Canada

Abstract: The study examines the relationship between ethical values (idealism, relativism) and personality traits (Machiavellianism, locus of control) on decision-making of individuals and their perception on earnings management practices. Based on a survey of advanced auditing students in Canada, the study finds statistically significant empirical evidence that individuals with high idealism judge earnings management more harshly than individuals who exhibit low idealism. In addition, we demonstrate that situationists (high idealism and high relativism) consider earnings management as more unethical. The study also provides statistically significant empirical evidence that people judge accounting manipulation as more unethical than operating manipulation. The results are even more profound when earnings management decisions are inconsistent with GAAP. We find no empirical evidence with respect to Machiavellianism and locus of control in decision-making on earnings management practices. The implication of our findings is that ethical perceptions are dominant in decision-making on earnings management instead of personal characteristics.

Keywords: earnings management; ethical perceptions; idealism; relativism; Machiavellianism; locus of control; ethics; personality traits; auditing students; Canada; accounting manipulation; operating manipulation; decision making; personal characteristics.

DOI: 10.1504/IJBAF.2012.052173

International Journal of Behavioural Accounting and Finance, 2012 Vol.3 No.3/4, pp.163 - 187

Published online: 10 Apr 2015 *

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