Journal of Business Ethics

, Volume 126, Issue 1, pp 43–60 | Cite as

Ethical Climate, Social Responsibility, and Earnings Management

  • William E. Shafer


This study proposes and tests a model of the relations among corporate accountants’ 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’ 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’ support for corporate ethics and social responsibility, and also the first study to document that industry accountants’ 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.


Ethical climate Perceived importance of ethics and social responsibility Earnings management Hong Kong 


  1. Ahmed, M. M., Chung, K. Y., & Eichenseher, J. W. (2003). Business students’ perceptions of ethics and moral judgment: A cross-cultural study. Journal of Business Ethics, 43, 89–102.CrossRefGoogle Scholar
  2. Anderson, J. C., & Gerbing, D. W. (1988). Structural equation modeling in practice: A review and recommended two-step approach. Psychological Bulletin, 103, 411–423.CrossRefGoogle Scholar
  3. Axinn, C. N., Blair, J. E., Heorhiadi, A., & Thach, S. V. (2004). Comparing ethical ideologies across cultures. Journal of Business Ethics, 54, 103–119.CrossRefGoogle Scholar
  4. Berger, P. L., & Luckmann, T. (1966). The social construction of reality. New York: Doubleday.Google Scholar
  5. Bollen, K. A. (1989). Structural equations with latent variables. New York: Wiley.CrossRefGoogle Scholar
  6. Bruns, W. J., & Merchant, K. A. (1990). The dangerous morality of managing earnings. Management Accounting, 72, 22–25.Google Scholar
  7. Byrne, B. (2001). Structural equation modeling with AMOS—Basic concepts, applications, and programming. Mahwah, NJ: Lawrence Erlbaum Associates.Google Scholar
  8. Churchill, G. A. (1979). A paradigm for developing better measures of marketing constructs. Journal of Marketing Research, 16, 64–73.CrossRefGoogle Scholar
  9. Cullen, J. B., Parboteeah, K. P., & Victor, B. (2003). The effects of ethical climates on organizational commitment: A two-study analysis. Journal of Business Ethics, 46, 127–141.CrossRefGoogle Scholar
  10. Cullen, J. B., Victor, B., & Bronson, J. W. (1993). The ethical climate questionnaire: An assessment of its development and validity. Psychological Reports, 73, 667–674.CrossRefGoogle Scholar
  11. Dawley, D., Houghton, J. D., & Bucklew, N. S. (2010). Perceived organizational support and turnover intention: The mediating effects of personal sacrifice and job fit. The Journal of Social Psychology, 150, 238–257.CrossRefGoogle Scholar
  12. Elias, R. Z. (2002). Determinants of earnings management ethics among accountants. Journal of Business Ethics, 40, 33–45.CrossRefGoogle Scholar
  13. Elias, R. Z. (2004). The impact of corporate ethical values on perceptions of earnings management. Managerial Auditing Journal, 19, 84–98.CrossRefGoogle Scholar
  14. Fischer, M., & Rosenzweig, K. (1995). Attitudes of students and accounting practitioners concerning the ethical acceptability of earnings management. Journal of Business Ethics, 14, 433–444.CrossRefGoogle Scholar
  15. Fishbein, M., & Ajzen, I. (1975). Belief, attitude, intention, and behavior: An introduction to theory and research. Reading, MA: Addison-Wesley.Google Scholar
  16. Fornell, C., & Larcker, D. F. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of Marketing Research, 18, 39–50.CrossRefGoogle Scholar
  17. Friedman, M. (1962). Capitalism and freedom. Chicago: University of Chicago Press.Google Scholar
  18. Furr, R. (2011). Scale construction and psychometrics for social and personality psychology. Thousand Oaks, CA: Sage.Google Scholar
  19. García-Meca, E., & Sánchez-Ballesta, J. P. (2009). Corporate governance and earnings management: A meta-analysis. Corporate Governance: An International Review, 17, 594–610.CrossRefGoogle Scholar
  20. Greenfield, A. C., Norman, C. S., & Wier, B. (2008). The effect of ethical orientation and professional commitment on earnings management behavior. Journal of Business Ethics, 83, 419–434.CrossRefGoogle Scholar
  21. Groves, K. S., & LaRocca, M. A. (2011). An empirical study of leader ethical values, transformational and transactional leadership, and follower attitudes toward corporate social responsibility. Journal of Business Ethics, 103, 511–528.CrossRefGoogle Scholar
  22. Henderson, B. C., & Kaplan, S. E. (2005). An examination of the role of ethics in tax compliance decisions. Journal of the American Taxation Association, 27, 39–72.CrossRefGoogle Scholar
  23. Houghton, J. D., & Jinkerson, D. L. (2007). Constructive thought strategies and job satisfaction: A preliminary examination. Journal of Business and Psychology, 22, 43–53.CrossRefGoogle Scholar
  24. Hu, L., & Bentler, P. M. (1998). Fit indices in covariance structure modeling: Sensitivity to underparameterized model misspecification. Psychological Methods, 3, 424–453.CrossRefGoogle Scholar
  25. Hu, L., & Bentler, P. M. (1999). Cutoff criteria for fit indexes in covariance structure analysis: Conventional criteria versus new alternatives. Structural Equation Modeling, 6, 1–55.CrossRefGoogle Scholar
  26. Hunt, S. D., & Vitell, S. (1986). A general theory of marketing ethics. Journal of Macromarketing, 6, 5–16.CrossRefGoogle Scholar
  27. Hunt, S. D., & Vitell, S. (1991). The general theory of marketing ethics: A retrospective and revision. In N. C. Smith & J. A. Guelch (Eds.), Ethics in marketing (pp. 775–784). Irwin: Homewood, IL.Google Scholar
  28. Hunt, S. D., Wood, V. R., & Chonko, L. B. (1989). Corporate ethical values and organizational commitment in marketing. Journal of Marketing, 53, 79–90.CrossRefGoogle Scholar
  29. Klein, A. (2002). Audit committee, board of director characteristics, and earnings management. Journal of Accounting and Economics, 33, 375–400.CrossRefGoogle Scholar
  30. Kline, R. B. (1998). Principles and practice of structural equation modeling. New York: Guilford.Google Scholar
  31. Lämsä, A.-M., Vehkaperä, M., Puttonen, T., & Pesonen, H.-L. (2008). Effect of business education on women and men students’ attitudes on corporate responsibility in society. Journal of Business Ethics, 82, 45–58.CrossRefGoogle Scholar
  32. Martin, K. D., & Cullen, J. B. (2006). Continuities and extensions of ethical climate theory: A meta-analytic review. Journal of Business Ethics, 69, 175–194.CrossRefGoogle Scholar
  33. Merchant, K. A. (1989). Rewarding results: Motivating profit center managers. Boston, MA: Harvard Business School Press.Google Scholar
  34. Merchant, K. A., & Rockness, J. (1994). The ethics of managing earnings: An empirical investigation. Journal of Accounting and Public Policy, 13, 79–94.CrossRefGoogle Scholar
  35. Parboteeah, K. P., Cullen, J. B., Victor, B., & Sakano, T. (2005). National culture and ethical climates: A comparison of U.S. and Japanese accounting firms. Management International Review, 45, 459–481.Google Scholar
  36. Petty, R. E., Wegener, D. T., & Fabrigar, L. R. (1997). Attitudes and attitude change. Annual Review of Psychology, 48, 609–647.CrossRefGoogle Scholar
  37. Rosenzweig, K., & Fischer, M. (1994). Is managing earnings ethically acceptable? Management Accounting, 75, 31–34.Google Scholar
  38. Shafer, W. E. (2008). Ethical climate in Chinese CPA firms. Accounting, Organizations and Society, 33, 825–835.CrossRefGoogle Scholar
  39. Shafer, W. E. (2009). Ethical climate, organizational-professional conflict and organizational commitment: A study of Chinese auditors. Accounting, Auditing and Accountability Journal, 22, 1087–1110.CrossRefGoogle Scholar
  40. Shafer, W. E., Poon, M. C. C., & Tjosvold, D. (2013a). An investigation of ethical climate in a Singaporean accounting firm. Accounting, Auditing and Accountability Journal, 26, 312–343.CrossRefGoogle Scholar
  41. Shafer, W. E., Poon, M. C. C., & Tjosvold, D. (2013b). Ethical climate, goal interdependence, and commitment among Asian auditors. Managerial Auditing Journal, 28, 217–244.CrossRefGoogle Scholar
  42. Shafer, W. E., & Simmons, R. S. (2008). Social responsibility, Machiavellianism and tax avoidance: A study of Hong Kong Tax professionals. Accounting, Auditing and Accountability Journal, 21, 695–720.CrossRefGoogle Scholar
  43. Shafer, W. E., & Wang, Z. (2011). Effects of ethical context and Machiavellianism on attitudes toward earnings management in China. Managerial Auditing Journal, 26, 372–392.CrossRefGoogle Scholar
  44. Singhapakdi, A., Karande, K., Rao, C. P., & Vitell, S. J. (2001). How important are ethics and social responsibility? A multinational study of marketing professionals. European Journal of Marketing, 35, 133–153.CrossRefGoogle Scholar
  45. Singhapakdi, A., Vitell, S. J., Rallapalli, K. C., & Kraft, K. L. (1996). The perceived role of ethics and social responsibility: A scale development. Journal of Business Ethics, 15, 1131–1140.CrossRefGoogle Scholar
  46. Smith, D., & Langfield-Smith, K. (2004). Structural equation modeling in management accounting research: Critical analysis and opportunities. Journal of Accounting Literature, 23, 49–86.Google Scholar
  47. Treviño, L. K., Butterfield, K. D., & McCabe, D. L. (1998). The ethical context in organizations: Influence on employee attitudes and behaviors. Business Ethics Quarterly, 8, 447–476.CrossRefGoogle Scholar
  48. Victor, B., & Cullen, J. B. (1987). A theory and measure of ethical climate in organizations. Research in Corporate Social Performance and Policy, 9, 51–71.Google Scholar
  49. Victor, B., & Cullen, J. B. (1988). The organizational bases of ethical work climates. Administrative Science Quarterly, 33, 101–125.CrossRefGoogle Scholar
  50. Waldman, D., de Luque, M. S., Washburn, N., & House, R. (2006). Cultural and leadership predictors of corporate social responsibility values of top management: A GLOBE study of 15 countries. Journal of International Business, 37, 823–837.CrossRefGoogle Scholar
  51. Xie, B., Davidson, W. N., & DaDalt, P. J. (2003). Earnings management and corporate governance: The role of the board and the audit committee. Journal of Corporate Finance, 9, 295–316.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2013

Authors and Affiliations

  1. 1.Lingnan UniversityTuen MunHong Kong

Personalised recommendations