Real Earnings Management in Sales

Michael J. Ahearne, Jeffrey P. Boichuk, Craig J. Chapman, Thomas J. Steenburgh

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)1233-1266
Number of pages34
JournalJournal of Accounting Research
Volume54
Issue number5
DOIs
StatePublished - Dec 1 2016

Keywords

  • M11
  • M12
  • M16
  • M40
  • M41
  • M52
  • disclosure
  • earnings management
  • financial accounting
  • incentives
  • transparency

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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