Governance implications of the effects of stakeholder management on financial reporting

Abstract

Purpose

The purpose of this paper is to test whether effective stakeholder management results in transparent financial reporting.

Design/methodology/approach

This paper uses a linear model informed by stakeholder theorizing and established measures of stakeholder management, earnings quality, and earnings management.

Findings

Organizations exhibiting effective stakeholder management have higher earnings quality and are less likely to engage in discretionary earnings management.

Research implications

Future research should carefully sort out the meaning of different measures of earnings quality, should clarify cross‐national institutional differences to reconcile contradictions in extant research, and should discover the underlying governance orientations that shape decision‐making processes and outcomes.

Practical implications

Governing bodies must take into account how underlying organization cultures shape governance regimes, which may determine the transparency with which organization actors interact with various stakeholder groups.

Originality/value

This study establishes a positive link between effective stakeholder management and transparent financial reporting, suggesting that both may be artifacts of deeper underlying orientations toward accountability, transparency, and managerial discretion.

Citation

Mattingly, J.E., Harrast, S.A. and Olsen, L. (2009), "Governance implications of the effects of stakeholder management on financial reporting", Corporate Governance, Vol. 9 No. 3, pp. 271-282. https://doi.org/10.1108/14720700910964334