TY - JOUR

T1 - The management of accounting numbers: case study evidence from the crash of an airline

AU - Jorissen, Ann

AU - Otley, David

N1 - The final, definitive version of this article has been published in the Journal, Accounting and Business Research, 40 (1), 2010, © Informa Plc

PY - 2010

Y1 - 2010

N2 - Financial misrepresentation has usually been analysed by large-scale empirical research. However, the generality gained from such an approach is at the cost of understanding the rich and complex nature of financial misrepresentation in real organisations. We adopt a case study approach to gain more insight into the incentives, embedded in contracts, which trigger decisions to engage in financial misrepresentation and the underlying elements of discretion in these processes. In particular, we examine whether contractual incentives should be considered as endogenous or exogenous and we take a more integrated and dynamic perspective than is typical. Our findings demonstrate that in order to understand the decision processes of real managers it is necessary to distinguish between negotiable and non-negotiable contracts of the firm. Using a multi-theory perspective we observe that the direction of the causation assumed in the agency framework (i.e. contracts influence behaviour) is often reversed in the case of negotiable contracts (i.e. managers influence contracts). The case findings also provide insights into a number of additional variables which enlarge the discretion of a senior manager to engage in financial misrepresentation. The manipulation of accounting numbers can be achieved by many mechanisms which traditional methods based on accruals would not detect. The use of a wider range of research methods is therefore desirable. .

AB - Financial misrepresentation has usually been analysed by large-scale empirical research. However, the generality gained from such an approach is at the cost of understanding the rich and complex nature of financial misrepresentation in real organisations. We adopt a case study approach to gain more insight into the incentives, embedded in contracts, which trigger decisions to engage in financial misrepresentation and the underlying elements of discretion in these processes. In particular, we examine whether contractual incentives should be considered as endogenous or exogenous and we take a more integrated and dynamic perspective than is typical. Our findings demonstrate that in order to understand the decision processes of real managers it is necessary to distinguish between negotiable and non-negotiable contracts of the firm. Using a multi-theory perspective we observe that the direction of the causation assumed in the agency framework (i.e. contracts influence behaviour) is often reversed in the case of negotiable contracts (i.e. managers influence contracts). The case findings also provide insights into a number of additional variables which enlarge the discretion of a senior manager to engage in financial misrepresentation. The manipulation of accounting numbers can be achieved by many mechanisms which traditional methods based on accruals would not detect. The use of a wider range of research methods is therefore desirable. .

KW - earnings management

KW - financial misrepresentation

KW - accounting choices

KW - corporate governance

KW - executive Compensation

U2 - 10.1080/00014788.2010.9663382

DO - 10.1080/00014788.2010.9663382

M3 - Journal article

VL - 40

SP - 3

EP - 38

JO - Accounting and Business Research

JF - Accounting and Business Research

SN - 0001-4788

IS - 1

ER -