IDEAS home Printed from https://ideas.repec.org/a/taf/acctbr/v53y2023i1p108-126.html
   My bibliography  Save this article

Standard precision and aggressive financial reporting: the influence of incentive horizon

Author

Listed:
  • Kara E. Hunter
  • Jacob M. Rose
  • Atm Tariquzzaman
  • Jay C. Thibodeau

Abstract

The extant literature on precision in accounting standards suggests that financial statement preparers are less likely to make aggressive financial reporting decisions under less precise, principles-based accounting standards as compared to under more precise, rules-based accounting standards. We extend this line of research by examining how the incentive horizon of financial statement preparers influences earnings management behaviour. Consistent with prior literature, we find evidence that more precise standards lead to more income-increasing earnings management behaviour than do less precise standards when the incentive horizon is short-term in nature. However, when the incentive horizon is long-term, more precise standards are associated with financial reporting decisions that reduce current income relative to less precise standards. Importantly, the findings demonstrate that the effects of standard precision are changed by the incentive time horizon, and the effects of standard precision on financial decision makers cannot be fully understood when precision is studied without considering the timing of management incentive structures.

Suggested Citation

  • Kara E. Hunter & Jacob M. Rose & Atm Tariquzzaman & Jay C. Thibodeau, 2023. "Standard precision and aggressive financial reporting: the influence of incentive horizon," Accounting and Business Research, Taylor & Francis Journals, vol. 53(1), pages 108-126, January.
  • Handle: RePEc:taf:acctbr:v:53:y:2023:i:1:p:108-126
    DOI: 10.1080/00014788.2021.1952059
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00014788.2021.1952059
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/00014788.2021.1952059?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:acctbr:v:53:y:2023:i:1:p:108-126. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RABR20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.