Reporting Frequency and Presentation Format: Detecting Real Activities Manipulation

• In Event: IS Reporting Environments and Management Control

Abstract

As management increasingly manages earnings through real activities manipulation (RAM), RAM detection has become an important issue. This study investigates the role of reporting frequency and presentation format in detecting RAM. Based on the results of an online experiment with 77 experienced financial analysts, we find that while more frequent reporting and visualized presentation format both seem to help financial analysts detect RAM, more frequent reporting significantly improves RAM detection only if financial analysts are aided with visualized data. The results of our study suggest that more frequent financial reporting has the potential to improve RAM detection by reducing information asymmetry. However, it also has the potential side effect of information overload. Appropriate decision aids (i.e., visualized presentation format) can help address information overload.

Authors

• Fengchun Tang, Virginia Commonwealth University

• Christopher Kevin Eller, Virginia Commonwealth University

• Benson Wier, Virginia Commonwealth University