The relationship between financial managers compensation and earnings manipulation: The mediating role of organizational identity

Document Type: Original Article

Authors

1 Faculty of Economics, University of Algarve, Faro, Portugal

2 Department of Accounting, Golestan Institute of Higher Education, Gorgan, Iran

Abstract

The adoption of compensation contracts to motivate executives to exert effective and conducive efforts has raised worries about the likelihood of earnings manipu-lation by management. Organizational identity plays a pivotal role in motivating managers to exhibit their optimal performance as managers’ performance towards the benefits of their firms could enhance their desirability. The present study aims at investigating the association between compensation and earnings manipulation with focus on the moderating effect of organizational identity on this relationship. In pursuit of this goal, three questionnaires used by Abernethy et al (2017) are employed and then distributed among 68 managers of five industries including automobile and automobile parts manufacturing, machinery, electrical machinery and equipment, basic metals and metal products manufacturing listed on the Tehran Stock Exchange in 2018. The research hypotheses are tested using structural equation method and PLS software. The results reveal that compensation and organizational identity significantly affect earnings manipulation. Furthermore, organizational identity influences the correlation between compensation and earnings manipulation.

Keywords