David J. Cherrington, J. Owen Cherrington, Appropriate Reinforcement Contingencies in the Budgeting Process, Journal of Accounting Research, Vol. 11, Empirical Research in Accounting: Selected Studies 1973 (1973), pp. 225-253

We surveyed 1,638 sales executives across 40 countries regarding their companies’ likelihood of asking sales to perform real earnings management (REM) actions when earnings pressure exists. Using this information, which we refer to as companies’ REM propensities, we study how company characteristics and environmental conditions relate to the responses received. The use of cash-flow incentives for sales personnel and the distribution of interfunctional power in favor of finance rather than sales are both associated with companies’ REM propensities. In addition, we show that sales executives preemptively change their behaviors in anticipation of top management's REM requests. Sales executives working for public companies and companies in the United States reported higher levels of REM propensity. The data also support an association between REM propensity and finance–sales conflict. These findings and others are compared and contrasted with existing empirical and survey-based research on REM throughout the paper.

Auditing, Sampling, Substantive test, Bayesian model

Liability, Deferred revenue, Breakage, Accrued expense

Auditing, Going-concern opinion, Auditor's Loss function, Auditor incentives

Taxation, Foreign Tax Credits, Capital structure, Financing policy

Auditing, Workpaper Review Performance, Manager performance, Senior performance

Disclosures, Investor sophistication, Information availability, Risk sharing

Earnings announcements, Market reaction, Informational content, Market reaction duration

Research Methodology, Event studies, Multivariate regression model, Asset pricing