Career Concerns and Earnings Management

Elizabeth A. Demers, Chong Wang
2013 Social Science Research Network  
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 Holmstrom ( , 1999 , we present a career concerns based earnings
more » ... nt 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. JEL Classification: M40, M41.
doi:10.2139/ssrn.2312129 fatcat:emkgpudemrc3xckawrp2tm42tu