Management Motivations for Financial Statement Manipulation

The management of a company has two types of motivations or incentives for manipulating financial reporting through accrual discretions: capital market incentives and contract based incentives.

  • Capital Market Incentives: Financial reporting affects the price of a company's stock and the price of its bonds. Therefore management has the incentive to exceed the market expectations. Management may attempt to manipulate net income in order to meet analyst forecasts. Management may also become more publicly pessimistic as its fiscal year progresses, in order to generate positive earnings surprises later in the year, as positive earnings surprises tend to elevate stock prices.
  • Contract Based Incentives: When management is heavily compensated with stock or has bonuses tied to earnings then incentives exist to manipulate financial statements. In addition, companies with debt may be motivated to manipulate financial statements in order to maintain debt covenants.

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Data Science in Finance: 9-Book Bundle

Data Science in Finance Book Bundle

Master R and Python for financial data science with our comprehensive bundle of 9 ebooks.

What's Included:

  • Getting Started with R
  • R Programming for Data Science
  • Data Visualization with R
  • Financial Time Series Analysis with R
  • Quantitative Trading Strategies with R
  • Derivatives with R
  • Credit Risk Modelling With R
  • Python for Data Science
  • Machine Learning in Finance using Python

Each book comes with PDFs, detailed explanations, step-by-step instructions, data files, and complete downloadable R code for all examples.