Journal article

Organization identity and earnings manipulation

Margaret A Abernethy, Jan Bouwens, Peter Kroos

ACCOUNTING ORGANIZATIONS AND SOCIETY | PERGAMON-ELSEVIER SCIENCE LTD | Published : 2017

Abstract

Management scholars are beginning to provide empirical evidence that organization identity (OI) can be a powerful means of reducing agency costs. We examine whether an individual's identity with the firm influences the agency costs associated with incentive contracts, namely earnings manipulation. Based on OI theory, we expect that managers who identify with the firm gain utility by taking actions that in their view benefits the firm, and experience disutility from taking actions that are harmful to the firm. Drawing on a third-party survey database, we find that performance-based compensation is associated with higher levels of earnings manipulation. Importantly, we also find that managers ..

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University of Melbourne Researchers

Grants

Funding Acknowledgements

This study received generous support from Thomas Henry Carroll-Ford Foundation at Harvard Business School. We acknowledge feedback from Chung-Yu Hung, Flora Kuang, Michal Matejka, Bo Qin, Naomi Soderstrom and Mark Wallis as well as from the participants of seminars at the University of Melbourne, VU University Amsterdam, Foster School of Business of the University of Washington, and the 2012 AAA MAS conference. We thank two anonymous reviewers and Chris Chapman (editor) for their helpful comments.