Penny Wise and Pound Foolish: Does Striving to Meet Earnings Expectations by Manipulating Real Activities Trigger Product Recalls?

• 成果类型: Article
• 署名作者: Chen, Yangyang; Ma, Lijun; Pittman, Jeffrey; Yang, Xin
• 署名单位: City University of Hong Kong; University of International Business & Economics; Memorial University Newfoundland; Virginia Polytechnic Institute & State University; Shanghai University of Finance & Economics
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2021.04035
• 发表日期: 2025
• 关键词: product recalls; product quality; EARNINGS EXPECTATIONS; real activities management

摘要

We examine whether managers' activities in striving to reach earnings targets through real earnings manipulation affect their firms' product recalls. Our evidence implies that firms suspected of manipulating real activities in trying to meet earnings benchmarks exhibit a higher likelihood and frequency of product recalls. In cross-sectional results consistent with expectations, we find that the impact of exploiting real activities to attain earnings benchmarks on product recalls intensifies for firms whose managers have stronger incentives to manage earnings and subsides for firms subject to greater customer power and firms with more growth opportunities. Additional analysis shows that lowering product quality to meet or beat earnings expectations undermines firms' future performance.