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Real Earnings Management in Sales

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  • MICHAEL J. AHEARNE
  • JEFFREY P. BOICHUK
  • CRAIG J. CHAPMAN
  • THOMAS J. STEENBURGH

Abstract

We surveyed 1,638 sales executives across 40 countries regarding their companies’ likelihood of asking sales to perform real earnings management (REM) actions when earnings pressure exists. Using this information, which we refer to as companies’ REM propensities, we study how company characteristics and environmental conditions relate to the responses received. The use of cash‐flow incentives for sales personnel and the distribution of interfunctional power in favor of finance rather than sales are both associated with companies’ REM propensities. In addition, we show that sales executives preemptively change their behaviors in anticipation of top management's REM requests. Sales executives working for public companies and companies in the United States reported higher levels of REM propensity. The data also support an association between REM propensity and finance–sales conflict. These findings and others are compared and contrasted with existing empirical and survey‐based research on REM throughout the paper.

Suggested Citation

  • Michael J. Ahearne & Jeffrey P. Boichuk & Craig J. Chapman & Thomas J. Steenburgh, 2016. "Real Earnings Management in Sales," Journal of Accounting Research, Wiley Blackwell, vol. 54(5), pages 1233-1266, December.
    • Handle: RePEc:bla:joares:v:54:y:2016:i:5:p:1233-1266
    DOI: 10.1111/1475-679X.12134
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    3. Godsell, David & Huang, Kelly & Lao, Brent, 2023. "Managers’ rank & file employee coordination costs and real activities manipulation," Accounting, Organizations and Society, Elsevier, vol. 107(C).
    4. Tuck Siong Chung & Angie Low & Roland T. Rust, 2023. "Executive confidence and myopic marketing management," Journal of the Academy of Marketing Science, Springer, vol. 51(5), pages 1118-1142, September.
    5. Preetinder Kaur & Sridhar N Ramaswami & Raghuram Bommaraju, 2021. "The Chief Marketing Officer: an antidote to myopic earnings management practices," Marketing Letters, Springer, vol. 32(2), pages 165-178, June.
    6. Jui-I Chang & Chen-Ying Lee & Geng-Yu Lin, 2021. "Real earnings management and borrowing costs: The moderating effect of the directors’ and officers' liability insurance," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 11(5), pages 1-3.
    7. James Jianxin Gong & S. Mark Young & Aner Zhou, 2023. "Real earnings management and the strategic release of new products: evidence from the motion picture industry," Review of Accounting Studies, Springer, vol. 28(3), pages 1209-1249, September.
    8. Hoitash, Udi & Mkrtchyan, Anahit, 2022. "Internal governance and outside directors’ connections to non-director executives," Journal of Accounting and Economics, Elsevier, vol. 73(1).
    9. Galdi, Fernando Caio & Johnson, E. Scott, 2021. "Accounting for inventory costs and real earnings management behavior," Advances in accounting, Elsevier, vol. 53(C).
    10. Han Li, 2019. "Conservatism, Earnings Management and R&D Capitalization," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(2), pages 52-60, April.
    11. Aytekin Ertan, 2022. "Real earnings management through syndicated lending," Review of Accounting Studies, Springer, vol. 27(4), pages 1157-1198, December.

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