Do firms practicing integrated reporting engage in less myopic behavior? International evidence on opportunistic earnings management

Manuscript Type: EmpiricalResearch Question/Issue: Earnings management is often perceived as a typical response to managers’ short-term objectives at the expense of long-term benefits. However, this is not aligned with the most recent development in corporate reportingintegrated reporting (IR)which encourages long-term orientation and a trustworthy, honest, and ethical corporate culture. We thus examine whether firms practicing IR to a greater extent exhibit lower levels of earnings management.Research Findings/Insights: Using multiple IR measures and an international sample of 19,926 firm-year observations from 2008–2015, we document that while firms practicing IR engage in less accrual-based earnings management, they do resort to real activities earnings management. Such opportunistic earnings management behavior is most pronounced when firms’ incentive to manage earnings is high. We also show that opportunistic earnings management behavior is moderated in countries and regions where IR is mandatory, where capital markets are more developed, and where financial reporting is less frequent.Theoretical/Academic Implications: Our study contributes to the growing literature on whether IR is an effective governance tool in constraining earnings management behavior. The results show that the institutional environment plays an essential role in enabling corporate reporting initiatives such as IR to affect substantive internal changes rather than being used opportunistically.Practitioner/Policy Implications: Firms that practice IR to a greater extent are associated with a lower level of earnings management in countries where IR is mandatory, which contributes to the policy debate on mandating IR