Management control systems and real earnings management: Effects on future firm performance

58 Pages Posted: 16 Sep 2019 Last revised: 23 Mar 2021

See all articles by Beatriz Garcia Osma

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration; European Corporate Governance Institute (ECGI)

Jacobo Gomez-Conde

Universidad Autónoma de Madrid - Accounting Department

Ernesto Lopez-Valeiras

University of Vigo

Date Written: March 23, 2021

Abstract

We examine an unexplored side of management control systems (MCS): its links with real earnings management. We propose that interactive use of MCS support management in identifying, evaluating, selecting, and implementing real actions that conceptually would be classified as real earnings management (REM) and that impact firm performance. Interactive MCS use is predicted to enhance managerial REM actions that retain the focus of the organization on its strategic objectives, leading to higher future performance. We test our research model empirically with survey and archival data. The results support our predictions. Finally, we explore the role of other levers of control.

Keywords: Real earnings management, Management control systems, Interactive use, Levers of control

JEL Classification: M41

Suggested Citation

Garcia Osma, Beatriz and Gomez-Conde, Jacobo and Lopez-Valeiras, Ernesto, Management control systems and real earnings management: Effects on future firm performance (March 23, 2021). Available at SSRN: https://ssrn.com/abstract=3449178 or http://dx.doi.org/10.2139/ssrn.3449178

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Jacobo Gomez-Conde (Contact Author)

Universidad Autónoma de Madrid - Accounting Department ( email )

Campus de Cantoblanco
Madrid, Madrid 28049
Spain

Ernesto Lopez-Valeiras

University of Vigo ( email )

Business and Tourism Faculty
Ourense, Ourense E-32004
Spain

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