Career Concerns and Earnings Management
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Authors
Demers, Elizabeth
Wang, Chong
Subjects
earnings management
career concerns
accruals and real activities management
reversal of earnings management
career concerns
accruals and real activities management
reversal of earnings management
Advisors
Date of Issue
2013-08
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Abstract
Motivated by the disconnect between survey evidence documenting that executives prioritize
implicit contracting (i.e., labor market based career concerns) when making earnings
management decisions (Graham et al (2005)) and the extant literature’s focus on explicit
contracting to explain earnings manipulation, we examine analytically the role of managerial
career concerns in earnings management. Building on Holmstrom (1982, 1999), we
present a career concerns based earnings management model that incorporates the unique
reversing nature of earnings management. A key insight derived from the model is that
whether the predictions of a traditional career concerns model prevail, which is to say
that managers engage in more income-increasing behavior in their early years, critically
depends upon the reversal characteristics of the earnings management vehicle chosen.
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Article
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Department
Graduate School of Business & Public Policy (GSBPP)
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This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.