The roles of self-construal in sharpening reputation judgment: an experimental study on earnings management

Abstract

This study aims to investigate the role of self-construal in sharpening reputation judgment on earnings management cases. This study involves a personality variable that can provide sharper insights into individual assessments, namely self-construal. The study uses an experimental case with involved participants to judge the ethics of earnings management done by other managers (the target managers). Participants of this study consist of 109 master’s degree students majoring in accounting and management who acts as fellow managers. Participants provide ethical judgment and reputation judgment of the target managers. This study indicates that ethical judgment on earnings management behavior differs depending on the target managers’ self-construal. In addition, ethical judgment has a positive and significant effect on reputation judgment. The following analysis showed that ethical judgment mediates the effect of earnings management behavior that self-construal moderates on reputation judgment. Studies that highlight the impact of managers’ reputation engaging in earnings management are still limited. This study used a behavioral approach, especially involving self-construal, to scrutinize the behavior of individuals within the organization, which is previous studies have not yet involved that personality factor. This research’s results imply that a manager’s response to peer’s behavior is helpful to design an appropriate management control system for organizations. This study only used earnings management scenarios in order to increase earnings. Earnings management can be in the form of actions to increase or decrease earnings.