Sebastian Wagener: Accounting for the Middle: Causes and Extent of Middle Managers’ Earnings Management


The accounting process is complex and prone to interference from the various parties involved. Using middle managers, we examine one of the unknowns of this process. They are able to influence earnings long before top executives can, but their actions are virtually untraceable in consolidated financial statements. We gather survey data from 77 middle managers to provide a comprehensive assessment of their earnings management practices. In the opinions of the middle managers, the factors that most limit their discretion are auditors and internal controls. Our results indicate a majority of middle managers engage in practices to substantially manage earnings, but mostly downwards. To this end, they employ both accounting actions, such as adjustments to provisions, and real actions, such as transaction shifts. Since their motivations are diverse, including meeting targets, smoothing earnings, and reducing future expectations, there is no uniform motivation that drives all managers equally. Moreover, the results reveal the influence of superiors on middle managers’ practices throughout the accounting process.