Damage Control : Earnings Management by Firms Facing Product Harm Crises

Like JIANG, Michael MAGNAN, Lixin Nancy SU, Shafu ZHANG

Research output: Working paperWorking paper seriesWorking Paper

Abstract

Product harm crises have the potential to undermine a firm’s reputation as well as its managers’ career perspectives. An ethical dilemma arises during a PHC as to whether managers choose to be transparent about the crisis’ economic implications or camouflage them to neutralize in an unethical manner the crisis’ negative impact. Our evidence suggests that managers choose to increase income via earnings management when their firms experience a crisis. Such unethical action reduces the potential for customer losses and for a firing of the CEO. However, in the longer-run, it carries negative consequences in the form of a greater probability of a financial statement restatement. Moreover, there is less unethical earnings management by crisis firms that are subject to stricter external monitoring as well as by firms with proactive ethical policies.
Original languageEnglish
Publication statusPublished - Jan 2018

Publication series

NameCIRANO Working Papers
PublisherCIRANO
No.2018S-01
ISSN (Print)2292-0838

Fingerprint

Product-harm crises
Managers
Damage control
Earnings management
Restatements
Ethical dilemmas
Camouflage
Firm reputation
Financial statements
External monitoring
Chief executive officer
Economic crisis
Income

Cite this

JIANG, L., MAGNAN, M., SU, L. N., & ZHANG, S. (2018). Damage Control : Earnings Management by Firms Facing Product Harm Crises. (CIRANO Working Papers; No. 2018S-01).
JIANG, Like ; MAGNAN, Michael ; SU, Lixin Nancy ; ZHANG, Shafu. / Damage Control : Earnings Management by Firms Facing Product Harm Crises. 2018. (CIRANO Working Papers; 2018S-01).
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JIANG, L, MAGNAN, M, SU, LN & ZHANG, S 2018 'Damage Control : Earnings Management by Firms Facing Product Harm Crises' CIRANO Working Papers, no. 2018S-01.

Damage Control : Earnings Management by Firms Facing Product Harm Crises. / JIANG, Like; MAGNAN, Michael; SU, Lixin Nancy; ZHANG, Shafu.

2018. (CIRANO Working Papers; No. 2018S-01).

Research output: Working paperWorking paper seriesWorking Paper

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JIANG L, MAGNAN M, SU LN, ZHANG S. Damage Control : Earnings Management by Firms Facing Product Harm Crises. 2018 Jan. (CIRANO Working Papers; 2018S-01).