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Ethical Climate, Social Responsibility, and Earnings Management

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  • William Shafer

Abstract

This study proposes and tests a model of the relations among corporate accountants’ perceptions of the ethical climate in their organization, the perceived importance of corporate ethics and social responsibility, and earnings management decisions. Based on a field survey of professional accountants employed by private industry in Hong Kong, we found that perceptions of the organizational ethical climate were significantly associated with belief in the importance of corporate ethics and responsibility. Belief in the importance of ethics and social responsibility was also significantly associated with accountants’ ethical judgments and behavioral intentions regarding accounting and operating earnings manipulation. These findings suggest that perceptions of ethical climate, usually presumed to reflect the “tone at the top” in the organization, lead accounting professionals to rationalize earnings management decisions by adjusting their attitudes toward the importance of corporate ethics and social responsibility. This is the first study to document a relationship between organizational ethical climate and professional accountants’ support for corporate ethics and social responsibility, and also the first study to document that industry accountants’ views toward corporate ethics and social responsibility are associated with their willingness to manipulate earnings. The findings have important implications, suggesting that organizational efforts to enhance the ethical climate and emphasize the importance of corporate ethics and social responsibility could reduce the prevalence of earnings manipulation. Copyright Springer Science+Business Media Dordrecht 2015

Suggested Citation

  • William Shafer, 2015. "Ethical Climate, Social Responsibility, and Earnings Management," Journal of Business Ethics, Springer, vol. 126(1), pages 43-60, January.
    • Handle: RePEc:kap:jbuset:v:126:y:2015:i:1:p:43-60
    DOI: 10.1007/s10551-013-1989-3
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    Cited by:

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    3. Mohammad, Shoeb & Husted, Bryan, 2023. "Skilled workforces and Law-abiding organizational climates in emerging markets," Journal of Business Research, Elsevier, vol. 158(C).
    4. Dawn W. Massey, 2017. "Discussion of “Recognizing Ethical Issues: An Examination of Practicing Industry Accountants and Accounting Students”," Journal of Business Ethics, Springer, vol. 142(2), pages 277-283, May.
    5. Nazia Adeel & Chris Patel & Nonna Martinov-Bennie & Sammy Xiaoyan Ying, 2022. "Islamic Religiosity and Auditors’ Judgements: Evidence from Pakistan," Journal of Business Ethics, Springer, vol. 179(2), pages 551-572, August.
    6. repec:mth:ijafr8:v:9:y:2019:i:1:p:15-37 is not listed on IDEAS
    7. M. Fernanda Wagstaff & Gabriela L. Flores & Albert Cannella & Sayan Sarkar & Christine Choirat, 2021. "Construct Validity of Unobtrusive Measures of Organizational Ethical Climates," Corporate Reputation Review, Palgrave Macmillan, vol. 24(3), pages 158-177, August.
    8. Damiano Montani & Francesco Perrini & Daniele Gervasio & Andrea Pulcini, 2020. "The “Quantitative Discretion Index”: A New Business Ethics Tool to Prevent Opportunistic Earnings Management Practices," Journal of Management and Sustainability, Canadian Center of Science and Education, vol. 10(1), pages 1-96, July.
    9. Pekkan Nazmiye Ulku & Bicer Mehmet, 2022. "Ethical Climate’s Mediating Role on the Relationship Between Emotional Intelligence and Job Satisfaction," Journal of Management and Business Administration. Central Europe, Sciendo, vol. 30(1), pages 115-132, March.
    10. Fangjun Wang & Zhichao Zhang & Luying Xu, 2020. "Corporate social responsibility and financial statement comparability: Evidence from China," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(3), pages 1375-1394, May.
    11. Stacy H. Lee & Jung Ha-Brookshire, 2017. "Ethical Climate and Job Attitude in Fashion Retail Employees’ Turnover Intention, and Perceived Organizational Sustainability Performance: A Cross-Sectional Study," Sustainability, MDPI, vol. 9(3), pages 1-19, March.
    12. Lu-Ming Tseng, 2019. "How Implicit Ethics Institutionalization Affects Ethical Selling Intention: The Case of Taiwan’s Life Insurance Salespeople," Journal of Business Ethics, Springer, vol. 158(3), pages 727-742, September.
    13. Ashley Nicole West & Gary M. Fleischman, 2023. "The Roles of Cynicism, CFO Pressure, and Moral Disengagement on FIN 48 Earnings Management," Journal of Business Ethics, Springer, vol. 185(3), pages 545-562, July.
    14. K. Praveen Parboteeah & Matthias Weiss & Martin Hoegl, 2024. "Ethical Climates Across National Contexts: A Meta-Analytical Investigation," Journal of Business Ethics, Springer, vol. 189(3), pages 573-590, January.
    15. Audrey Hsu & Kevin Koh & Sophia Liu & Yen H. Tong, 2019. "Corporate Social Responsibility and Corporate Disclosures: An Investigation of Investors’ and Analysts’ Perceptions," Journal of Business Ethics, Springer, vol. 158(2), pages 507-534, August.
    16. Wu, Bao & Fang, Chevy-Hanqing & Wang, Qi & Huang, Qiongxian, 2023. "Does managerial networking impinge our morality in Guanxi context? The moderating effect of corruption perception," Emerging Markets Review, Elsevier, vol. 55(C).
    17. Jorien L. Pruijssers & Pursey P. M. A. R. Heugens & J. Oosterhout, 2020. "Winning at a Losing Game? Side-Effects of Perceived Tournament Promotion Incentives in Audit Firms," Journal of Business Ethics, Springer, vol. 162(1), pages 149-167, February.
    18. Raghda Abulsaoud Ahmed Younis & Aida Said Moawad Elsaid, 2021. "Enhancing the In-Role Behaviour and Organizational Citizenship Behaviours in the Workplace: A Multidimensional View for the Role of Ethical Climate," International Journal of Business and Management, Canadian Center of Science and Education, vol. 14(12), pages 1-1, July.
    19. Tabea Franziska Hirth-Goebel & Barbara E. Weißenberger, 2019. "Management accountants and ethical dilemmas: How to promote ethical intention?," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 30(3), pages 287-322, October.
    20. Chu-Mei Liu & Chou-Kang Chiu, 2020. "Modeling turnover intention and job performance: the moderation of perceived benevolent climate," Review of Managerial Science, Springer, vol. 14(3), pages 611-631, June.
    21. Rahmawati, 2018. "Deconstructed CSR and Social Audit Model: Postmodernist Paradigm Observations in Luwu Mining Areas, Indonesia," GATR Journals jfbr142, Global Academy of Training and Research (GATR) Enterprise.
    22. Arindam Das & Dimple Grover, 2022. "Ethical climates in South Asian Organizations: empirical findings from India," SN Business & Economics, Springer, vol. 2(6), pages 1-26, June.
    23. Noorul Azwin binti Md Nasir & Muhammad Jahangir Ali & Noorshella binti Che Nawi, 2019. "Studies on Earnings Management and Financial Statement Fraud in Corporate Firms," Research in World Economy, Research in World Economy, Sciedu Press, vol. 10(2), pages 15-19, July.

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