Ethical climate, social responsibility, and earnings management

This study proposes and tests a model of the relations among corporate accountants\u27 perceptions of the ethical climate in their organization, the perceived importance of corporate ethics and social responsibility, and earnings management decisions. Based on a field survey of professional accountants employed by private industry in Hong Kong, we found that perceptions of the organizational ethical climate were significantly associated with belief in the importance of corporate ethics and responsibility. Belief in the importance of ethics and social responsibility was also significantly associated with accountants\u27 ethical judgments and behavioral intentions regarding accounting and operating earnings manipulation. These findings suggest that perceptions of ethical climate, usually presumed to reflect the tone at the top in the organization, lead accounting professionals to rationalize earnings management decisions by adjusting their attitudes toward the importance of corporate ethics and social responsibility. This is the first study to document a relationship between organizational ethical climate and professional accountants\u27 support for corporate ethics and social responsibility, and also the first study to document that industry accountants\u27 views toward corporate ethics and social responsibility are associated with their willingness to manipulate earnings. The findings have important implications, suggesting that organizational efforts to enhance the ethical climate and emphasize the importance of corporate ethics and social responsibility could reduce the prevalence of earnings manipulation