Title

Ethical climate, social responsibility, and earnings management

Document Type

Journal article

Source Publication

Journal of Business Ethics

Publication Date

1-1-2015

Volume

126

Issue

1

First Page

43

Last Page

60

Keywords

Earnings management, Ethical climate, Hong Kong, Perceived importance of ethics and social responsibility

Abstract

This study proposes and tests a model of the relations among corporate accountants' perceptions of the ethical climate in their organization, the perceived importance of corporate ethics and social responsibility, and earnings management decisions. Based on a field survey of professional accountants employed by private industry in Hong Kong, we found that perceptions of the organizational ethical climate were significantly associated with belief in the importance of corporate ethics and responsibility. Belief in the importance of ethics and social responsibility was also significantly associated with accountants' ethical judgments and behavioral intentions regarding accounting and operating earnings manipulation. These findings suggest that perceptions of ethical climate, usually presumed to reflect the "tone at the top" in the organization, lead accounting professionals to rationalize earnings management decisions by adjusting their attitudes toward the importance of corporate ethics and social responsibility. This is the first study to document a relationship between organizational ethical climate and professional accountants' support for corporate ethics and social responsibility, and also the first study to document that industry accountants' views toward corporate ethics and social responsibility are associated with their willingness to manipulate earnings. The findings have important implications, suggesting that organizational efforts to enhance the ethical climate and emphasize the importance of corporate ethics and social responsibility could reduce the prevalence of earnings manipulation.

DOI

10.1007/s10551-013-1989-3

Print ISSN

01674544

E-ISSN

15730697

Publisher Statement

Copyright © Springer Science+Business Media Dordrecht 2013

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Recommended Citation

Shafer, W. E. (2015). Ethical climate, social responsibility, and earnings management. Journal of Business Ethics, 126(1), 43-60. doi: 10.1007/s10551-013-1989-3