Management Accounting Section Midyear Meeting

The Effects of Organizational Culture and Real Earnings Management on Managers’ Discretionary Goal Adjustments

• In Event: Targets and Real Earnings Management

Abstract

This study investigates via an experiment how organizational culture (collaborative vs. competitive) and employees’ real earnings management (REM) possibilities (low vs. high) affect managers’ discretionary intra- and end-of-period goal adjustments. We predict and find that when organizational culture is collaborative, managers make less downward intra-period adjustments when REM potential is high than when it is low. This negative effect of REM possibilities on intra-period adjustments is mitigated under competitive culture. We also predict and find that, when beginning-of-period performance goals are missed under collaborative culture, managers set higher end-of-period performance goals, i.e., more difficult performance evaluation standards, when REM potential is high than when it is low. This effect is again mitigated under competitive culture. Our paper contributes to the understanding of discretionary intra- and end-of-period goal adjustments and the unintended consequences of organizational cultures.

Authors

• Markus C. Arnold, University of Bern

• Martin Artz, University of Münster

• Ivo D. Tafkov, Georgia State University