Accounts ethics

The Impact of CFOs’ Incentives and Earnings Management Ethics on their Financial Reporting Decisions: The Mediating Role of Moral Disengagement

Cathy A. Beaudoin • Anna M. Cianci •

George T. Tsakumis

Received: 23 August 2012 / Accepted: 12 February 2014 / Published online: 7 March 2014

� Springer Science+Business Media Dordrecht 2014

Abstract Despite regulatory reforms aimed at inhibiting

aggressive financial reporting, earnings management per-

sists and continues to concern practitioners, regulators, and

standard setters. To provide insight into this practice and

how to mitigate it, we conduct an experiment to examine

the impact of two independent variables on CFOs’ dis-

cretionary expense accruals. One independent variable,

incentive conflict, is manipulated at two levels (present and

absent)—i.e., the presence or absence of a personal finan-

cial incentive that conflicts with a corporate financial

incentive. The other independent variable is CFOs’ earn-

ings management ethics (‘‘EM-Ethics,’’ high vs. low),

measured as their assessment of the ethicalness of key

earnings management motivations. We find that incentive

conflict and EM-Ethics interact to determine CFOs’ dis-

cretionary accruals such that (a) in the presence of incen-

tive conflict, CFOs with low (high) EM-Ethics tend to give

into (resist) the personal incentive by booking higher

(lower) expense accruals; and (b) in the absence of an

incentive conflict, CFOs with low (high) EM-Ethics tend to

give into (resist) the corporate incentive by booking lower

(higher) expense accruals. We also find support for a

mediated-moderation model in which CFOs’ level of EM-

Ethics influences their moral disengagement tendencies

which, in turn, differentially affect their discretionary

accruals, depending on the presence or absence of incentive

conflict. Theoretical and practical implications of these

findings are discussed.

Keywords Dispositional ethics � Earnings management � Incentives � Moral disengagement

Introduction

Earnings management involves the manipulation of reve-

nues and/or expenses to obtain a desired financial reporting

outcome (e.g., Ball 2006; Healy and Whalen 1999;

Schipper 1989). This practice has played a role in the

downfall of some major corporations (e.g., Enron and

Sunbeam) and led to a push by the accounting profession

and standard setters for regulatory changes (Elias 2002;

Lawton 2007; SEC 2008). For example, in his 2002 testi-

mony before the UK Parliament Select Committee on

Treasury, International Accounting Standards Board

(IASB) Chair Sir David Tweedie decried the widespread

use of aggressive earnings management (Tweedie 2002).

Similarly in 1998, then Chair of the US Securities and

Exchange Commission (SEC), Arthur Levitt, warned that

earnings management erodes investor confidence and

undermines credibility of the financial markets (Levitt

1998), a view that is also reflected more recently by the

SEC (SEC 2008). However, despite regulatory efforts to

Electronic supplementary material The online version of this article (doi:10.1007/s10551-014-2107-x) contains supplementary material, which is available to authorized users.

C. A. Beaudoin

Accounting Faculty, School of Business Administration,

University of Vermont, Burlington, VT 05405, USA

e-mail: [email protected]

A. M. Cianci (&) Accounting Faculty, School of Business, Wake Forest

University, Winston Salem, NC 27109, USA

e-mail: [email protected]

G. T. Tsakumis

Department of Accounting & MIS, Alfred Lerner College of

Business and Economics, University of Delaware, Newark,

DE 19716, USA

e-mail: [email protected]

123

J Bus Ethics (2015) 128:505–518

DOI 10.1007/s10551-014-2107-x

combat aggressive financial reporting (e.g., Sarbanes–Ox-

ley Act of 2002), earnings management persists and is

exacerbated by managers’ incentives (e.g., Cohen et al.

2008; McVay 2006). Thus, it is important to understand

earnings management and investigate ways to minimize its

potentially dysfunctional effects (SEC 2008).

To investigate these issues, we conduct an experiment to

examine the joint effect of incentive conflict (i.e., the

presence or absence of a personal financial incentive that

conflicts with a corporate financial incentive) and chief

financial officers’ (hereafter ‘‘CFOs’’) assessments of the

ethicalness of key earnings management motivations

(hereafter ‘‘EM-Ethics,’’ dichotomized as high or low) on

earnings management behavior. In our setting, a personal

financial incentive is an incentive to increase current period

expenses to maximize bonus potential over a two-year

period and a corporate financial incentive is an incentive to

minimize expenses to achieve corporate targets. We

manipulate incentive conflict, because prior research has

found that incentives play an important role in earnings

management behavior (Bergstresser and Philippon 2006;

Burns and Kedia 2006; Ibrahim and Lloyd 2011). 1 Our

measure of EM-Ethics, developed specifically for this

study, is a fourteen-item construct based on executives’

motivations for managing earnings identified in the seminal

survey conducted by Graham et al. (2005). We focus on

EM-Ethics, a dispositional measure, because, as suggested

by Al-Khatib et al. (2004), the individual is the correct unit

of analysis when investigating ethics since it is the indi-

vidual’s ‘‘personal’’ code of ethics that ultimately influ-

ences his/her behavior. This notion is especially relevant to

the current context given the varying perspectives on

earnings management, with some viewing it as an unethical

practice resulting in negative consequences (e.g., Johnson

et al. 2012; Kaplan 2001; Vinciguerra and O’Reilly-Allen

2004), while others suggesting that it is an inherent result

of the financial reporting process that does not eliminate

the usefulness of accounting earnings (e.g., Graham et al.

2005; Lin et al. 2012; Parfet 2000). Further, we examine

CFOs’ assessment of EM-Ethics in particular because the

CFO is the company’s financial reporting gatekeeper,

responsible for approving actions that may lead to earnings

management (Levitt 2003) and contributing, along with

other executives, to creating a ‘tone at the top’ that shapes

the ethical culture and climate within the organization (e.g.,

Sweeney et al. 2010; Arel et al. 2012).

Prior research finds that CFOs make accrual decisions

consistent with maximizing their personal incentives (e.g.,

Cohen et al. 2008; Fields et al. 2001). Our results only

provide directional (not statistically significant) support for

the expectation that in the presence (absence) of a personal

financial incentive that conflicts with a corporate financial

incentive, CFOs tend to engage in more (less) self-inter-

ested earnings management. However, consistent with our

hypotheses, we find that CFOs’ EM-Ethics moderates their

willingness to manage earnings under either incentive

conflict condition. Specifically, we find that (a) in the

presence of a personal financial incentive that conflicts

with a corporate financial incentive, CFOs with low (high)

EM-Ethics tend to give into (resist) the personal incentive

by booking higher (lower) expense accruals; and (b) in the

absence of a personal financial incentive that conflicts with

a corporate financial incentive, CFOs with low (high) EM-

Ethics tend to give into (resist) the corporate incentive by

booking lower (higher) expense accruals. Also consistent

with our hypotheses, we find support for a mediated-

moderation effect whereby CFOs’ EM-Ethics significantly

influences their propensity to morally disengage morality

from their actions and give into incentives. That is, the

propensity to morally disengage differentially affects the

level of CFOs’ expense accruals depending on their

incentives. CFOs with high (low) EM-Ethics are less

(more) likely to morally disengage and thus give into a

personal financial incentive (i.e., book larger expense

accruals) or a corporate financial incentive (i.e., book

smaller expense accruals).

Our findings contribute to the literature in several ways.

First, we provide the first experimental evidence of the

joint impact of incentives and dispositional EM-Ethics on

CFOs’ earnings management decisions. While prior

research has examined incentive contract effects (e.g.,

Ghosh and Olsen 2009; Healy 1985; Holthausen et al.

1995), no prior studies, to our knowledge, have examined

CFOs’ incentives in conjunction with an individual dif-

ference variable such as EM-Ethics. Our results suggest

that the EM-Ethics/earnings management relation is mod-

erated by the presence or absence of incentive conflict.

Second, we develop a dispositional measure (EM-Ethics)

and provide experimental evidence of its impact on CFOs’

earnings management behavior. In this way, we extend

prior survey research on attitude differences related to the

ethical acceptability of earnings management among un-

dergrads, MBAs, and practicing accountants (e.g., Fisher

and Rosenzweig 1995; Greenfield et al. 2008; Kaplan et al.

2012). Prior studies examining the link between general

individual differences and ethical decision making in

business settings provide mixed results (e.g., Carpenter and

Reimers 2005; Maroney and McDevitt 2008; Mintchik and

Farmer 2009). This stream of literature has not provided

evidence that context-specific individual differences are

linked to context-specific behavior, which may be an

1 Additionally, extensive prior research on agency theory provides

evidence of the conflicting incentives present in the principal–agent

relation (e.g., Ettredge et al. 2013; Fischer and Louis 2008; Pierce

2012).

506 C. A. Beaudoin et al.

123

explanatory factor of why mixed results have been found in

business settings. The current study provides insight into

this issue by demonstrating that EM-Ethics, a context-

specific individual difference variable, affects CFOs’

earnings management behavior. Finally, we also provide

evidence of how CFOs’ EM-Ethics operates through their

propensity to morally disengage. This is consistent with

recent research highlighting moral disengagement as an

individual cognitive orientation that significantly affects

unethical behavior (Moore et al. 2012). Specifically, CFOs’

level of EM-Ethics influences their moral disengagement

tendencies which, in turn, differentially affect their dis-

cretionary accruals, depending on the presence or absence

of incentive conflict.

The rest of the paper is organized as follows. The next

section reviews relevant literature and presents our

hypotheses. In the subsequent sections, we describe our

research method and present our results. We conclude with

a discussion of the implications and limitations of our

research and offer suggestions for future research.

Literature Analysis and Hypotheses Development

Earnings Management and Incentives

Earnings management is one example of an agency cost

where the misalignment of interests between the agent

(e.g., manager) and principal (e.g., firm, superior, and

shareholders) leads the agent to maximize his/her own

economic interests at the expense of the principal (Eisen-

hardt 1989; Jensen and Meckling 1976). One way to

manage earnings is to manipulate revenues or expenses by

making income-increasing or income-decreasing discre-

tionary accruals (Levitt 1998; Noronha et al. 2008). Man-

agers’ discretionary accruals tend to be income decreasing

when managers have incentives to defer earnings and

income increasing when managers have incentives to

accelerate earnings. Using expenses as an example, man-

agement may overestimate costs when the company is

profitable and exceeds its financial targets or underestimate

costs to maximize earnings in the current period. These

actions may be undertaken to avoid falling short of a bonus

threshold or earnings target or to improve the issue price

around an IPO (Chung et al. 2005; Cohen et al. 2008;

Guidry et al. 1999; Healy 1985; Holthausen et al. 1995;

Matsunaga and Park 2001; Shaw 2003; Teoh et al. 1998).

In an effort to minimize earnings management, organi-

zations may focus on the structure of compensation con-

tracts, which frequently include a base salary plus a cash

bonus (Crocker and Slemrod 2007; Evans and Sridhar

1996; Jensen and Meckling 1976; Watts and Zimmerman

1986). A cash bonus can be either fixed as a percentage of

salary (i.e., a retention bonus) or variable (i.e., based on the

agent achieving certain financial targets). 2 In our experi-

mental setting, it is the variable bonus aspect of the com-

pensation contract that provides a personal incentive to

manage earnings via self-interested discretionary accruals.

For example, if prior to making an expense accrual deci-

sion, a CFO knows that projected expenses for the current

year are favorable relative to his/her variable bonus targets

(i.e., below bonus targets), s/he may record additional

discretionary accruals to reduce incurred expenses in the

subsequent year, thereby gaming the system to maximize

his/her combined two-year bonus payout. Conversely,

when bonus targets are guaranteed as a fixed percentage of

salary (i.e., personal financial incentives are absent), the

CFO’s financial reporting decisions are influenced pri-

marily by the corporate financial targets set by the execu-

tive management group (i.e., corporate financial

incentives). Thus, the use of accounting discretion to

maximize either personal or corporate financial incentives

is considered earnings management.

In our setting, larger discretionary expense accruals will

maximize the potential bonus payout over a 2-year period

but will conflict with corporate financial incentives to

minimize overall expenses. Thus, we expect that when

CFOs have a personal financial incentive that conflicts with

a corporate financial incentive, they will book larger dis-

cretionary expense accruals than when they don’t have

conflicting incentives. That is, we expect CFOs to book

larger (smaller) discretionary expense accruals [represen-

tative of income-decreasing (increasing) earnings man-

agement] when a personal financial incentive that conflicts

with a corporate financial incentive is present (absent). This

leads to the following hypothesis:

H1 In the presence (absence) of a personal financial

incentive that conflicts with a corporate financial incentive,

CFOs will record larger (smaller) discretionary expense

accruals.

The Interaction of Incentive Conflict and EM-Ethics

Prior earnings management research has primarily focused

on earnings management in a capital markets setting,

examining the influence of institutional and other factors

on its practice, detection, magnitude, and consequences

(e.g., Bedard et al. 2004; Habib and Hansen 2008; Fan

et al. 2010; Krishnan 2003; Lee 2012; Xiong et al. 2010).

Some survey and experimental research have investigated

2 Fixed bonuses are often called ‘‘retention’’ or ‘‘stay’’ bonuses which

are used as an incentive to retain key employees (e.g., Phadnis 2013;

Scholtes 2009; Smith and Pleven 2009; Lublin 2013). Such bonuses

have become increasingly popular (Klaff 2003) with, for example,

Yahoo and Starbuck CEOs receiving millions of dollars of such

bonuses in recent years (Isidore 2013; Smith 2012).

The Impact of CFOs’ Incentives and Earnings Management Ethics 507

123

earnings management-related attitudes and ethical percep-

tions of academics, accountants, and students (e.g., Elias

2002; Fisher and Rosenzweig 1995; Greenfield et al. 2008;

Kaplan 2001; Kaplan et al. 2012). However, prior research

has not examined whether ethical assessments of earnings

management are associated with accountants’ earnings

management behavior. In the current study, we address this

gap in the literature by examining the ethical perceptions of

earnings management (i.e., EM-Ethics) and their interac-

tive influence with incentives on CFOs’ earnings man-

agement behavior.

Perceptions of the ethicalness of earnings management

vary. On the one hand, some view earnings management as

an unethical practice resulting in negative consequences.

For example, some contend that earnings management,

‘‘probably the most important ethical issue facing the

accounting profession’’ (Merchant and Rockness 1994,

p. 92), obscures true firm value and erodes trust between

shareholders and companies (e.g., Graham et al. 2006;

Levitt 1998; Loomis 1999; Huang et al. 2008). On the other

hand, others suggest that earnings management is a nec-

essary and logical result of the flexibility in financial

reporting options, with managers routinely choosing

among all options permissible under GAAP in an effort to

maximize shareholder value (e.g., Parfet 2000; Chambers

and Lacey 1996; Dobson 1999; Dye 1988; Schipper 1989).

Further, while many reasons for earning management

behavior have been identified by prior research (Graham

et al. 2005), assessments of the overall ethicalness of

earnings management may vary depending on perceptions

underlying its purpose. For instance, prior research sug-

gests that managing earnings for self-interested purposes

are perceived as less ethical than managing earnings for the

benefit of the company (e.g., Kaplan 2001; Merchant and

Rockness 1994). Thus, individuals may differ in their

perceptions of the ethicalness of earnings management.

According to ethical decision-making models, ethical

perceptions are influenced by one’s ethical sensitivity

and the context of the judgment/issue and, in turn, these

perceptions influence ethical behavior (Jones 1991; Rest

1979; Treviño 1986). Consistent with this notion,

accounting research finds that higher levels of ethical

reasoning and moral intensity and greater sensitivity to

shareholders’ interest are negatively associated with

aggressive accounting decisions (e.g., Arel et al. 2012;

Maroney and McDevitt 2008; Ponemon 1992). Applying

this research to the current context, we suggest that

CFOs’ different perceptions of the ethicalness of key

earnings management motivations—i.e., their EM-Eth-

ics—will affect their propensity to engage in this prac-

tice when they are presented with incentives to do so.

While prior research suggests that both incentives and

ethical assessments influence earnings management (e.g.,

Chung et al. 2005; Greenfield et al. 2008; Guidry et al.

1999; Healy 1985; Kaplan 2001; Kaplan et al. 2012), no

research, to our knowledge, has examined the joint effect

of these two variables on earnings management behavior.

Specifically, prior research indicates that managers use

accounting discretion to manage earnings in order to

maximize cash bonuses (e.g., Guidry et al. 1999; Healy

1985; Ibrahim and Lloyd 2011) and equity compensation

(e.g., Bergstresser and Philippon 2006; Burns and Kedia

2006; Cheng and Warfield 2005). In addition, prior

research documents that the perception of the ethicalness of

a given issue influences accounting decisions (e.g., Arel

et al. 2012; Maroney and McDevitt 2008). However, in the

current study, we examine the perceived ethicalness of key

earnings management motivations—EM-Ethics—and, to

our knowledge, no research has examined the joint effect

of incentives and EM-Ethics on earnings management

behavior.

Per Hypothesis 1, we expect CFOs with a personal

financial incentive that conflicts with a corporate finan-

cial incentive to record larger discretionary expense

accruals than CFOs without such a conflicting incentive.

Further, recall that in our setting, corporate incentives are

to minimize expenses to help the company meet corpo-

rate financial targets, while personal incentives are to

shift future period’s expenses into the current year in an

effort to maximize their bonus potential over a two-year

period. Therefore, we posit that when presented with a

personal financial incentive that conflicts with a corporate

financial incentive, low (high) EM-Ethics CFOs will

record larger (smaller) expense accruals, representative

of more (less) self-interested earnings management.

When not presented with a conflicting personal financial

incentive, CFOs with low (high) EM-Ethics will record

smaller (larger) expense accruals, representative of more

(less) company-related earnings management. Thus, we

expect that high EM-Ethics CFOs will resist giving into

either a personal or corporate financial incentive. In

contrast, we expect that low EM-Ethics CFOs will give

into these incentives and manage earnings accordingly.

Based on this discussion, we hypothesize the following

interaction:

H2 EM-Ethics and incentive conflict will interact such

that in the presence (absence) of a personal financial

incentive that conflicts with a corporate financial incentive,

CFOs with low EM-Ethics will record larger (smaller)

discretionary expense accruals as compared to CFOs with

high EM-Ethics.

508 C. A. Beaudoin et al.

123

The Mediating Role of Moral Disengagement

We posit that moral disengagement is the mechanism

through which the interaction between EM-Ethics and

incentives is activated, with high (low) moral disengage-

ment propensity exacerbating (diminishing) earnings

management behavior. That is, we expect that CFOs’ EM-

Ethics will significantly influence their tendencies to mor-

ally disengage and give into incentives. Moral disengage-

ment propensity will, in turn, differentially affect the level

of CFOs’ expense accruals depending on the presence or

absence of incentive conflict. Moral disengagement occurs

through a set of eight interrelated cognitive mechanisms

that allow an individual to disengage self-sanctions that

govern his/her behavior (Bandura 1986, 1991, 2002). 3

According to Bandura (1999), people adopt moral stan-

dards (e.g., ideals and values) which, when activated, serve

as self-reactive deterrents for unethical behavior. However,

individuals use strategies to rationalize, justify, or down-

play their unethical choices—i.e., to disengage their moral

standards from their conduct—thereby protecting their

self-image, minimizing cognitive distress and allowing

them to act unethically (Bandura et al. 1996). Moral dis-

engagement theory has been used to explain why individ-

uals knowingly engage in socially inappropriate/delinquent

behaviors (e.g., Moore et al. 2012; Naquin et al. 2010) and

what cognitions underlie various self-serving behavior such

as corporate wrong doing, corruption, and political vio-

lence (e.g., Bandura 1990; Moore 2008).

We suggest that an individual’s EM-Ethics is inversely

related to their propensity to disengage their personal moral

standards from their conduct. For example, CFOs with high

EM-Ethics should be generally less willing to view earn-

ings management as an acceptable practice. As a result,

high EM-Ethics CFOs will be more likely to activate their

own personal moral standards, making it more difficult for

them to adopt strategies to rationalize/downplay unethical

behavior; in this way, tendencies to morally disengage or

deactivate their personal moral standards will be reduced

when faced with incentives to manage earnings. Con-

versely, CFOs with low EM-Ethics should be generally

more willing to view earnings management in a favorable

light. As a result, low EM-Ethics CFOs will be less likely

to activate their own personal moral standards, making it

easier for them to adopt strategies to rationalize/downplay

unethical behavior; in this way, their personal moral stan-

dards and any self-sanctions related to engaging in uneth-

ical behavior (including aggressive earnings management)

will be disengaged.

Thus, we expect CFOs with high (low) EM-Ethics to

exhibit lower (higher) tendencies to morally disengage and

give into incentive-consistent behavior. In turn, CFOs with

lower moral disengagement tendencies will make smaller

(larger) expense accruals in the presence (absence) of a

personal financial incentive that conflicts with a corporate

financial incentive, thereby overriding both personal and

company incentives to manage earnings. CFOs with higher

moral disengagement tendencies will make larger (smaller)

expense accruals in the presence (absence) of a personal

financial incentive that conflicts with a corporate financial

incentive, thereby pursuing the achievement of both per-

sonal and company incentives to manage earnings. This

proposed model is presented in Fig. 1. 4 This model sug-

gests that CFOs’ EM-Ethics influences their propensity to

morally disengage, which in turn differentially affects

CFOs’ expense accruals depending on the presence or

absence of incentive conflict. We, therefore, hypothesize

the following effect:

ACCRUAL

INCENTIVE CONFLICT

MORAL DISENGAGEMENT

EM-ETHICS

Fig. 1 Mediated-moderation model

3 Bandura (1999) posits that the following eight cognitive mecha-

nisms facilitate unethical behavior: moral justification (reframing

unethical acts as being in support of the greater good—e.g., redefining

the morality of killing to justify military action), euphemistic labeling

(using sanitized language to rename harmful actions and make them

appear more benign—e.g., fired employees described as being given a

‘‘career alternative enhancement’’), advantageous comparison (con-

trasting the behavior under examination with more reprehensible

behavior to make the former seem innocuous—e.g., ‘‘The Vietnam

war saved the populace from communist enslavement’’), displace-

ment of responsibility (attribution of personal responsibility to

authority figure[s]—e.g., Nazi prison guards claiming they were just

carrying out orders), diffusion of responsibility (attribution of personal

responsibility across members of a group—e.g., requiring a group

decision to get otherwise considerate people to behave unethically),

distortion of consequences (minimizing the seriousness of the effects

on one’s actions—e.g., moving a person far away from destructive

results to weaken the potential injurious effects on that person),

dehumanization (framing the victims of one’s actions as undeserving

of basic human consideration—e.g., during wartime, nations casting

their enemies as ‘‘demons’’ or ‘‘beasts’’), and attribution of blame

(assigning responsibility to the victims themselves—e.g., computer

hackers explaining that they are forced to hack into government

databases because of a villainous government).

4 The results and variables presented in Fig. 1 are discussed in the

‘‘Results’’ section.

The Impact of CFOs’ Incentives and Earnings Management Ethics 509

123

H3 Incentive conflict will moderate the relationship

between CFOs’ moral disengagement tendencies and their

discretionary expense accrual decisions, such that CFOs’

moral disengagement tendencies are influenced by their

individual EM-Ethics levels.

Research Method

Participants

Participants are 83 experienced financial statement preparers

(i.e.,financialofficers with the title ofCFOorequivalent) with

an average of 28.53 years of professional work experience. 5 It

was important that we select experienced executives (such as

these) who play a key role in the financial reporting decisions

of their companies since our experiment asks participants to

assume the role of a company controller faced with a discre-

tionary expense accrual decision. Of the 83 participants, 65 %

have current or prior experience working at publicly traded

companies, while 74 % have prior experience working as

external auditors. In addition, participants indicated sub-

stantial familiarity with the task of recording expense accruals

[mean = 6.12onaseven-pointscale(reverse-scored)where1

represents ‘‘Not at All’’ and 7 represents ‘‘Extremely’’]. 6

Procedure and Task

Participants were provided with case materials containing

company background information, a schedule of unbilled

consulting and advisory projects that are in process, the

task objective, and post-experimental questionnaire. Par-

ticipants were told to assume they were the controller for a

publicly traded company and asked to consider a year-end

accrual decision relating to consulting work that is in

process, but for which no billing has yet occurred. Partic-

ipants in each condition were also reminded by the com-

pany that staying focused on controlling current year costs

will help the company meet corporate financial targets.

Each participant was given the same schedule of services

provided by vendors, along with project status information

and estimated contract amounts. The total estimated con-

tractual value for these services is $3.3 million. The project

status for each vendor was described as in the ‘‘early

stages,’’ with estimated completion dates that indicate the

projects are expected to be finished within 1 year of their

start dates. Participants were informed that they had con-

tacted the vendors in an effort to obtain greater clarity;

however, the vendors were unable to provide further details

regarding anticipated completion of the contracts. The

uncertainty surrounding the project completion date is

typical of situations where managers utilize discretion

when making accrual decisions. Participants then indicated

their accrual recommendation regarding consulting and

advisory services that have not yet been billed. Participants

also completed demographic and case-related items.

Dependent and Independent Variables

The primary dependent variable is participants’ discretionary

expense accrual recommendation. Participants responded to

the following dependent variable: ‘‘How much do you rec-

ommend be recorded for consulting and advisory services for

which you have not yet been billed’’? Participants had the

option of recommending that no accrual be made for these

services (i.e., $0 recommendation). To test H3, we employ a

mediating variable—moral disengagement—which was

measured using Moore et al. (2012) eight-item measure of an

individual’s propensity to morally disengage (a = .76). Moral disengagement occurs through a set of eight interre-

lated cognitive mechanisms that allow an individual to dis-

engage self-sanctions that govern his/her behavior (Bandura

1991, 2002). A sample item reads ‘‘Considering the ways

people grossly misrepresent themselves, it’s hardly a sin to

inflate your own credentials a bit.’’ Participants rated each

item on a seven-point scale where 1 = ‘‘Strongly Disagree’’

and 7 = ‘‘Strongly Agree.’’ Thus, the higher the score, the

greater an individual’s propensity to morally disengage.

Two independent variables (incentive conflict and EM-

Ethics) create a 2 9 2 complete factorial design. As

mentioned above, every participant was given a corporate

financial incentive to minimize expenses—i.e., participants

in each condition were reminded by the company that

staying focused on controlling current year costs will help

5 We mailed instruments to 1,500 individuals identified by the

American Institute of Certified Public Accountants as CFOs/financial

officers. We received replies from 113 individuals, and 24 were

returned as undeliverable. The resulting response rate is 7.66 % (113

responses divided by 1,476 delivered). This response rate is consistent

with prior studies involving CFO participants; for instance, Brav et al.

2008 report a 5.3 % rate; Graham and Harvey 2001, p. 191 report a

‘‘nearly 9.0 %’’ rate; and Graham et al. 2005 report an 8.4 % response

rate for their unsolicited survey sample. There were 25 unusable

responses: sixteen instruments were completed by inappropriately

classified individuals such as staff accountants, clerks, and tax

accountants (our conclusions remain the same with or without these

individuals), and nine were returned with no response on the

dependent variable. Thus, 88 usable responses remained. Five of

these respondents were excluded in creating one of our main variables

of interest. We discuss this process in more detail below. In addition,

comparisons of early and late responders indicate no significant

differences, suggesting that nonresponse bias does not drive our

results. 6 Background variables (e.g., familiarity with recording expense

accruals, current or prior experience working at a publicly traded

company, and years of professional work experience) are not

significantly different between conditions. In addition, when we

include these variables in our analyses, they are neither significant nor

do they alter the conclusions we draw.

510 C. A. Beaudoin et al.

123

the company meet corporate financial targets. The presence

or absence of incentive conflict was operationalized by

providing participants with a personal financial incentive

that either conflicted (i.e., a variable bonus) or didn’t

conflict (i.e., a fixed bonus) with the corporate financial

incentive, respectively. 7

Therefore, participants in the

incentive conflict absent condition are told that, regardless

of any expense entry, they receive a guaranteed fixed bonus

of 25 % of base salary ($200,000) in both year 1 and year 2

(the current and following fiscal years, respectively). Thus,

there is no conflict between the individual’s personal

financial incentive and the company’s incentive to mini-

mize expenses. Similar to the absent condition, participants

in the incentive conflict present condition are also provided

clarification on the implication of their decision. Specifi-

cally, in the incentive conflict present condition, partici-

pants’ bonuses vary based on achieving targets for

minimizing plant expenses. Bonuses vary as a percentage

of base salary ($200,000). In the scenario, projected plant

expenses for year 1 ($77.1 million) are $3.0 million below

the maximum 40 % bonus target for expenses (i.e., the

participant currently qualifies for the largest bonus in year

1). Therefore, participants are told that this cushion gives

them the opportunity to record an amount of up to

$3,000,000 without jeopardizing any portion of the maxi-

mum 40 % bonus for year 1 and increases the likelihood of

their receiving a bonus in year 2.

Variable bonus targets for year 2 are structured so that

projected plant expenses of $83.05 million are $50,000

above the bonus target expense threshold of $83.00 million

that would qualify the manager for the minimum 20 %

bonus (i.e., the participant currently does not qualify for

any bonus in year 2, based on projected expenses). Thus, if

a manager decides to make an expense accrual in Year 1,

bonus targets become easier to achieve in Year 2. For

example, an accrual recommendation of $3.0 million in

Year 1 will not only preserve the maximum 40 % bonus in

Year 1 but will also help qualify the manager for a 40 %

bonus in Year 2, assuming actual Year 2 results are con-

sistent with the current projections. Therefore, there is a

personal incentive for managers to recommend higher

expense accruals in the current year that can then be used

to improve operating results in the following year; this,

however, is in conflict with corporate incentives to mini-

mize expenses.

The second independent variable, EM-Ethics, is a

measured variable that was designed specifically for this

study. Consistent with prior research (e.g., Ponemon 1992,

1995; Rutledge and Karim 1999), this variable was

dichotomized as either high or low based on participants’

responses to a 14-item construct (see Appendix) based on

executives’ motivations for managing earnings highlighted

in the seminal survey by Graham et al. (2005). Participants

indicated their agreement with each item on a seven-point

scale where 1 represents ‘‘Strongly Disagree’’ and 7 indi-

cates ‘‘Strongly Agree.’’ We calculated each individual’s

EM-Ethics score by summing their response to the 14 items

(a = .96).8 Higher (lower) scores represent a greater (les- ser) willingness to manage earnings—i.e., those individuals

with low (high) scores are high (low) in EM-Ethics. Con-

sistent with previous research (e.g., Lord and DeZoort

2001; Chang and Yen 2007), the division of participants

between high and low levels of EM-Ethics was accom-

plished by removing five participants at the median.

Including these participants in the analysis yields essen-

tially the same results as presented here.

Results

Manipulation Check and Hypothesis Testing

The manipulation check for incentive conflict indicates that

participants understood the manipulation. Only one par-

ticipant incorrectly identified their incentive conflict (i.e.,

whether their bonus was fixed or variable). Removing this

participant from the analyses does not change any of the

inferences drawn. Hypotheses 1 and 2 are tested using a

2 9 2 ANOVA in which incentive conflict, EM-Ethics,

and their interaction serve as the independent variables and

7 The purpose of incorporating a variable bonus into an employment

contract is to provide a risk-sharing element between the employer

and employee, as well as to increase motivation for the employee to

put forth maximum effort (Demski and Feltham 1978; Harris and

Raviv 1979). Alternatively, incorporating a fixed bonus into an

employment contract provides the employee with relief from

assuming the risk for uncontrollable events that may impact the

firm’s financial performance. Additionally, s/he will not incur any

explicit personal cost for decisions made based on their financial

statement impact. Use of a fixed bonus also shifts the agent’s focus

from achieving financial targets (i.e., ‘‘risk-sharing’’) to fulfilling

tenure-based targets (i.e., there is a personal cost to the agent of

leaving the firm before fixed bonuses are paid).

8 The Cronbach alpha value exceeds the standard for satisfactory

scale reliability (i.e., .70; see Kline 1999; Nunnally and Bernstein

1994). To provide further evidence of our scale’s reliability, we

conducted several inter-item correlational analyses (untabulated). All

of the inter-item correlations are positive, with 89 % of the inter-item

correlations significant at p \ .005, 7 % significant at p \ .05, and 4 % significant at p B .10. Further, we assessed the split-half

reliability of our scale by adopting an odd–even split of our scale,

where the odd-numbered items form one score and the even-

numbered items form another score (Davidshofer and Murphy 2005).

These two scores show a positive correlation of .933 (p = .0001),

providing additional support for the reliability of our scale. Finally,

the correlations between each scale item and the total EM-Ethics

score (i.e., the item-total correlations) are all positive, significant, and

above the .30 internal consistency threshold recommended by

Nunnally and Bernstein (1994).

The Impact of CFOs’ Incentives and Earnings Management Ethics 511

123

CFOs’ rank transformation of the expense accrual amount

for unbilled consulting and advisory services is the

dependent variable. 9

Hypothesis 3 is tested using the

mediated-moderation procedures recommended by Muller

et al. (2005). ANOVA results and cell means are presented

in Table 1. Panel A shows that the overall model is sig-

nificant (F = 2.74, p = .049).

Test of Hypothesis 1

Hypothesis 1 predicts that CFOs will record larger (smal-

ler) discretionary expense accruals in the presence

(absence) of a personal financial incentive that conflicts

with a corporate financial incentive. To test H1, we

examine the results of the main effect of incentive conflict

in our 2 9 2 ANOVA model. Although not significant at

conventional levels, Panel B of Table 1 reports results

directionally consistent with expectations. Specifically,

CFOs’ expense accrual recommendations are higher when

incentive conflict is present (mean = $825,162) than when

incentive conflict is absent (mean = $692,152). Therefore,

H1 is not supported.

Test of Hypothesis 2

Hypothesis 2 predicts that EM-Ethics and incentive conflict

will interact such that in the presence (absence) of a per-

sonal financial incentive that conflicts with a corporate

financial incentive, CFOs with low EM-Ethics will record

larger (smaller) discretionary expense accruals as com-

pared to those with high EM-Ethics. Table 1 reports a

significant and directionally consistent interaction between

EM-Ethics and incentive conflict in predicting CFOs’

expense accrual amounts (F = 8.19, p = .003), providing

support for H2. As expected, nontabulated comparisons

within incentive conflict conditions reveal that low (high)

EM-Ethics CFOs’ expense accruals are significantly larger

(smaller) when incentive conflict is present (F = 3.85,

p = .029). When incentive conflict is absent, low (high)

EM-Ethics CFOs’ expense accruals are significantly

smaller (larger), as expected (F = 4.25, p = .023). Fig-

ure 2 depicts a graphical representation of the interaction.

Test of Hypothesis 3

The development of H3 is predicated upon the notion that

CFOs’ EM-Ethics levels will significantly influence their

tendencies to morally disengage and give into incentives.

Moral disengagement propensity will, in turn, differentially

affect the level of CFOs’ expense accruals depending on

the presence or absence of incentive conflict. That is, we

expect CFOs with high (low) EM-Ethics to exhibit lower

(higher) tendencies to morally disengage and give into

incentive-consistent behavior. In turn, CFOs with lower

moral disengagement tendencies will make smaller (larger)

expense accruals in the presence (absence) of a personal

financial incentive that conflicts with a corporate financial

incentive, thereby overriding both personal and company

Table 1 ANOVA results and cell means (SD)

F statistic p value a

Panel A: ANOVA a

Overall Model 2.74 0.049

Independent variables

Incentive conflict (H1) 0.012 0.455

EM-ethics 0.139 0.710

Interaction

Incentive conflict 9 EM-ethics (H2) 8.19 0.003

EM-ethics Incentive conflict Overall

Present Absent

Panel B: Cell means (SD) for discretionary expense accruals b

Low Mean 933,909 496,087 710,133

(SD) (796,132) (427,947) (665,631)

n = 22 n = 23 n = 45

High Mean 665,667 888,217 800,368

(SD) (1,072,647) (757,073) (887,864)

n = 15 n = 23 n = 38

Overall Mean 825,162 692,152 751,446

(SD) (913,785) (639,563) (771,676)

n = 37 n = 46 n = 83

a The ANOVA was conducted using the rank of the discretionary

expense accrual observations as the dependent variable rather than the

actual reported expense amounts, because the actual reported expense

amounts are not normally distributed. One-tailed p values are reported

where expectations are unidirectional b All participants responded to the following dependent variable:

‘‘How much do you recommend be recorded for consulting and

advisory services for which you have not yet been billed’’?

9 Consistent with prior research in accounting (Boylan and Sprinkle

2001) and psychology (Ruwaard et al. 2012; Hutton et al. 2013), we

performed our analyses using the ranks of the discretionary expense

accrual observations as the dependent variable rather than the

reported expense amounts because the reported expense amounts

are not normally distributed (which violates one of the assumptions

upon which ANOVA and regression are based). Specifically, the

Shapiro–Wilk test for normality indicated that the reported expense

amounts for each of the four conditions are not normally distributed

(all p \ .0001). Additionally, as shown in Table 1, the standard deviations of the reported expense amounts are quite high. Accord-

ingly, an ANOVA conducted using a rank transformation of the

reported expense amounts is likely to be more efficient (powerful) and

theoretically more appropriate than an ANOVA conducted using the

actual reported expense amounts (Conover and Iman 1982; Boylan

and Sprinkle 2001). Analyses conducted using the actual reported

expense amounts yield results that are qualitatively similar to those

reported in the paper.

512 C. A. Beaudoin et al.

123

incentives to manage earnings. CFOs with higher moral

disengagement tendencies will make larger (smaller)

expense accruals in the presence (absence) of a personal

financial incentive that conflicts with a corporate financial

incentive, thereby pursuing the achievement of both per-

sonal and company incentives to manage earnings.

Consistent with our arguments leading to H3, we find

that CFOs with low EM-Ethics exhibit significantly greater

moral disengagement propensity than CFOs with high EM-

Ethics (nontabulated means = 13.40 and 10.70, respec-

tively, p = .002, one-tailed). Additionally, we dichoto-

mized moral disengagement to facilitate discussion of the

H3 results and more clearly highlight the relation between

moral disengagement, incentive conflict, and CFOs’

expense accruals. Consistent with our theoretical devel-

opment, we find that CFOs with lower moral disengage-

ment tendencies make smaller (larger) expense accruals in

the presence (absence) of a personal financial incentive that

conflicts with a corporate financial incentive (nontabulated

means = 575,882 and 865,950, respectively, p = .14, one-

tailed), thereby overriding both personal and company

incentives to manage earnings. CFOs with higher moral

disengagement tendencies make larger (smaller) expense

accruals in the presence (absence) of a personal financial

incentive that conflicts with a corporate financial incentive

(nontabulated means = 823,000 and 560,208, respectively,

p = .09, one-tailed), thereby pursuing the achievement of

both personal and company incentives to manage earnings.

Consistent with prior research (e.g., Shin and Zhou

2007; Grant 2008), we test H3 using the mediated-mod-

eration regression procedures recommended by Muller

et al. (2005). According to Muller et al. (2005), three

conditions must be met to show that the effect of our

mediator (moral disengagement) on our dependent variable

(accrual) depends on the moderator (incentive conflict).

First, the interaction between the independent variable

(EM-Ethics) and moderator (incentive conflict) must sig-

nificantly predict the dependent variable (accrual) (see

Table 2, Eq. 1). Second, the effect of our independent

variable (EM-Ethics) must significantly predict the medi-

ator (moral disengagement) (see Table 2, Eq. 2). Third, the

interaction between our mediator (moral disengagement)

and moderator (incentive conflict) must significantly pre-

dict the dependent variable (accrual) while controlling for

the mediator and the interaction between the independent

variable and moderator (see Table 2, Eq. 3). As a result,

the interaction between the independent variable and

moderator should be reduced (or not significant in the case

of full mediation) in magnitude (b = .237, p = .021, one- tailed in Eq. 3 of Table 2) compared to the interaction

between the independent variable and moderator shown in

the first step (b = .310, p = .003, one-tailed in Eq. 1 of Table 2). A Sobel test recommended by MacKinnon et al.

(2002) shows that this decrease is statistically significant

(z = 1.78, p = .038, one-tailed). Thus, the overall mod-

eration (incentive conflict) of our independent variable

(EM-Ethics) is being partially accounted for by our medi-

ator (moral disengagement).

Discussion

Aggressive earnings management has played a role in the

downfall of some major corporations and continues to

concern the accounting profession, standard setters, and

regulators (e.g., Elias 2002; SEC 2008). Despite regulator

reforms aimed at inhibiting aggressive financial reporting

(e.g., Sarbanes–Oxley Act of 2002), earnings management

continues to present a challenge to those parties interested

in mitigating its potentially dysfunctional effects (e.g.,

regulators and standard setters). Further, the effectiveness

of such regulatory initiatives is adversely affected by

managers’ incentives and their propensity to manage

earnings (e.g., Cohen et al. 2008; McVay 2006). In the

current study, we simultaneously study both dispositional

and situational influences on earnings management,

thereby shedding light on the interactive nature of earning

management behavior. In this way, we provide the first

evidence on how a dispositional and situational variable

jointly impact CFOs’ earnings management-related judg-

ments. Specifically, our study reports the results of an

experiment investigating the effect of incentive conflict and

ethical assessments of earnings management on CFOs’

earnings management decisions (i.e., discretionary expense

accrual decisions).

Prior research finds that CFOs make accrual decisions

consistent with maximizing their personal incentives (e.g.,

Fig. 2 Mean accrual amounts for incentive conflict (present and absent) 9 earnings management ethics (EM-Ethics; high and low)

The Impact of CFOs’ Incentives and Earnings Management Ethics 513

123

Cohen et al. 2008; Fields et al. 2001). Our results only

provide directional (not statistically significant) support for

the expectation that in the presence (absence) of a personal

financial incentive that conflicts with a corporate financial

incentive, CFOs tend to engage in more (less) self-inter-

ested earnings management. Consistent with our hypothe-

ses, we find that CFOs’ EM-Ethics interacts with incentives

to determine their earnings management behavior. Specif-

ically, we find that CFOs with low (high) EM-Ethics tend

to give into (resist) the incentives to manage earnings by

booking (a) higher (lower) expense accruals in the presence

of a personal financial incentive that conflicts with a cor-

porate financial incentive, and (b) lower (higher) expense

accruals in the absence of a personal financial incentive

that conflicts with a corporate financial incentive. These

results show that the influence of both a personal financial

incentive and a corporate financial incentive diminishes for

high EM-Ethics CFOs, suggesting that a CFO’s ethical

predisposition toward earnings management constrains

earnings management behavior. Also consistent with our

hypotheses, we find support for a mediated-moderation

effect whereby CFOs’ EM-Ethics significantly influences

their propensity to morally disengage and give into

incentives. In turn, moral disengagement propensity dif-

ferentially affects the level of CFOs’ expense accruals

depending on their incentives. Stated differently, the

overall moderation (Incentive Conflict) of our independent

variable (EM-Ethics) is being partially accounted for by

our mediator (moral disengagement).

Our results suggest a number of important implications

for research and practice. First, our findings suggest that

both incentives and ethical perceptions of earnings man-

agement play important roles in modeling CFOs’ willing-

ness to engage in earnings management behavior. While

prior research along with conventional business wisdom

suggests that incentives direct behavior (e.g., Ghosh and

Olsen 2009; Healy 1985; Holthausen et al. 1995), our study

shows that incentives designed to eliminate self-interested

earnings management do not eliminate other incentives to

manage earnings. Indeed, our study provides evidence that

it is one’s perceptions of the ethicalness of earnings man-

agement that has a significant interactive effect with

incentives on managing earnings.

Further, we extend previous attitudinal research on

earnings management (e.g., Fisher and Rosenzweig 1995;

Greenfield et al. 2008; Kaplan et al. 2012) by examining

the impact of ethical assessments of earnings management

on the behavior of CFOs, companies’ top financial

reporting decision makers. Considering the attention from

regulators, the financial press, and auditors on diminishing

earnings management behavior, one may assume that

financial executives are less likely to manage earnings.

However, our research suggests that experienced financial

officers who are low in EM-Ethics (i.e., who perceive that

Table 2 Regression analyses for mediated moderation (H3)

Dependent variable Equation 1 Equation 2 Equation 3

Accrual a

Moral disengagement (MD) Accrual

Independent variables b t b t b t

EM-ethics b

.040 0.37 .312 3.04*** .049 0.43

Incentive conflict (IC) c

-.012 -0.11 .059 .58 -.631 -1.86**

EM-ethics 9 IC .310 2.86*** -.031 -.304 .237 2.07**

MD d

.025 0.21

IC 9 MD .664 1.92**

** p \ .05. *** p \ .01 a

Accrual is participants’ responses to the following question in their role as controller at HCP: ‘‘How much do you recommend be recorded for

consulting and advisory services for which you have not yet been billed’’? Participants had the option of recommending that no accrual be made

for these services (i.e., $0 recommendation) b

EM-Ethics is a measured variable with two levels (1 = low; -1 = high). This variable was dichotomized as either high or low based on

participants’ responses to a fourteen-item construct (see Appendix ) developed specifically for this study and based on the key executive

motivations for managing earnings highlighted in the seminal survey conducted by Graham et al. (2005). Participants indicated their agreement

with the items on a seven-point scale where 1 represents ‘‘Strongly Disagree’’ and 7 indicates ‘‘Strongly Agree’’ c

Incentive Conflict was operationalized by providing participants with a financial incentive that either conflicted with a corporate financial

incentive to minimize expenses (variable bonus = 1) or didn’t conflict (fixed bonus = -1) with the corporate financial incentive d

Moral Disengagement was measured using Moore et al. (2012) eight-item measure of an individual’s propensity to morally disengage. Moral

disengagement occurs through a set of eight interrelated cognitive mechanisms (such as justification, blame attribution, and displacement of

responsibility) that allow an individual to disengage self-sanctions that govern his/her behavior (Bandura 1991, 2002). Participants indicated their

agreement with the items on a seven-point scale where 1 represents ‘‘Strongly Disagree’’ and 7 indicates ‘‘Strongly Agree.’’ The higher the score,

the greater an individual’s propensity to morally disengage

514 C. A. Beaudoin et al.

123

earnings management is relatively more ethical) manage

earnings either in response to personal financial incentives

or corporate financial incentives.

We also provide evidence that a personal financial

incentive or a corporate financial incentive may result in

more aggressive earnings management behavior, particu-

larly for CFOs with low EM-Ethics. That is, the findings

associated with our individual difference variable (EM-

Ethics) suggest that CFOs appear to constrain their

responsiveness to various incentives and, in turn, their

earnings management behavior due to the influence of their

personal earnings management-related ethical consider-

ations. These results may be of interest to organizations

that still employ various incentive contracts (such as vari-

able and fixed bonuses) to motivate behavior. Our results

suggest that identifying accounting professionals with high

EM-Ethics (rather than simply focusing on the incentive

contract employed) may contribute to maintaining a high-

quality financial reporting environment. Future research is

needed to explore various methods to heighten CFOs’ EM-

Ethics.

Finally, our results show that the interactive effect of

EM-Ethics and incentives on earnings management works

through moral disengagement. This finding may be of

interest to businesses, professional associations, and edu-

cators interested in increasing the ethicalness of the busi-

ness environment and attenuating earnings management

behavior by reducing morally disengaged thinking through

intervention, modeling, and training. For instance, through

actions and policies, ethical culture and climate within an

organization—i.e., the tone at the top—can be shaped by

executives (e.g., Sweeney et al. 2010; Arel et al. 2012);

these executives, in turn, may act as role models for

employees to emulate their behavior, especially if such

behavior is the social norm and been rewarded in the past

(Mayer et al. 2009). In this way, the corporate culture—

such as one that discourages moral disengagement—may

contribute to the integrity of the financial reporting process

(Treadway Commission 1987). In addition, prior research

has found that moral disengagement levels can be altered

by external influences (e.g., Paciello et al. 2008), sug-

gesting that training interventions may be effective at

reducing moral disengagement levels.

Limitations of our study should be noted. First, the

information provided to participants was limited to mini-

mize the time necessary to complete the experimental

instrument. Since accounting professionals would have a

richer information set in practice when making their

decisions, this leaves open the question of external validity

and the generalizability of our results. However, this lim-

itation, while noteworthy, is also applicable to most

experimental research. Second, highly experienced CFOs

participated in the current study. While this is appropriate

given the accounting decision task here, we do not know if

our results would generalize to less-experienced account-

ing professionals. Third, the applicability of our EM-Ethics

measure has not been used across multiple settings.

Therefore, its applicability across different earnings man-

agement contexts is an open research question. In addition,

future research may focus on further refining EM-Ethics as

a useful construct in earnings management research.

Appendix

Earnings Management Ethics (EM-Ethics) Construct A

Items

Indicate your agreement with the following statements. Using accounting discretion allowed within GAAP, I am willing to make an accrual…

Strongly Strongly Disagree Agree

a. to benefit shareholders. 1 2 3 4 5 6 7 b. to achieve analysts’ earnings targets. 1 2 3 4 5 6 7 c. to minimize earnings volatility 1 2 3 4 5 6 7 d. to maintain my career trajectory. 1 2 3 4 5 6 7 e. to prevent violation of a debt covenant. 1 2 3 4 5 6 7 f. to achieve corporate earnings targets. 1 2 3 4 5 6 7 g. to protect my professional reputation. 1 2 3 4 5 6 7 h. to preserve or achieve a desired credit rating 1 2 3 4 5 6 7 i. to protect the management team’s external reputation. 1 2 3 4 5 6 7 j. to achieve a personal bonus. 1 2 3 4 5 6 7 k. to increase the value of stock options. 1 2 3 4 5 6 7 l. to control company costs. 1 2 3 4 5 6 7 m. to benefit employees. 1 2 3 4 5 6 7 n. to achieve a team-based bonus. 1 2 3 4 5 6 7

The Impact of CFOs’ Incentives and Earnings Management Ethics 515

123

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