Further evidence on the ethics of managing earnings: An examination of the ethically related judgments of shareholders and non-shareholders

The current experimental study examines whether financial statement users' assessments of the ethicalness of earnings management is a function of intended benefit. Evening MBA students, assigned to the role of either a shareholder or non-shareholder, read three hypothetical scenarios involving a manager engaging in earnings management. In response to each scenario, participants judged the ethicalness of the earnings management incident and the likelihood that shareholders will suffer financially from the earnings management incident. The results of the study indicate that the ethicalness of earnings management was assessed less unethically for one of the three scenarios by shareholders when the earnings management was intended for company benefit. The results also show that intent did not influence ethicalness assessments among non-shareholders. These results provide some evidence to support Dye's (1988, pp. 201-207) analytic model and indicate that under certain conditions shareholders and non-shareholders are differentially influenced by the intent of earnings management.