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This chapter describes an in-class exercise to illustrate the implications associated with earnings management and corporate social responsibility (CSR). Student teams act as senior managers, evaluating scenarios in which they must decide whether to engage in earnings management and socially responsible actions. All decisions have the potential to change the firm's net operating income. The “auditor” reviews earnings management decisions based on accounting choices, imposing a penalty if the auditor disallows a decision. Earnings management decisions also affect the firm's earnings quality, operationalized through adjustments to the price–earnings (P/E) ratio. Several decisions affect the firm's social responsibility rating, which ultimately affects the P/E ratio (reflecting the long-term effects of CSR). The class discusses the implications of engaging in earnings management and practicing social responsibility, as well as the ethical issues associated with these decisions. Survey results indicate that this is an effective pedagogical tool, as students are highly engaged in the exercise. Data analysis also suggests that propensity to engage in accounting manipulations decreases over the course of the exercise.

Examine tax-related decisions of married couples to determine whether decisions are made jointly or if one spouse dominates the decision. We also examine characteristics related to decision styles.

Questionnaires completed independently by both the husband and wife.

Nearly 40 percent of the couples make tax decisions jointly, while the remaining couples allow one spouse to dominate tax-related decisions. The results indicate that when one spouse dominates the decisions, it is most often the wife. We also find that couples are more likely to share tax-related decision responsibility jointly when the husband earns significantly more than the wife, when the couple has greater income as a family, and when they are a new couple.

Prior research has generally not recognized tax decisions by married couples as a joint decision or attempted to determine whether tax decisions are dominated by the husband or wife. This issue has implications for interpreting research results in light of prior research that has found that tax-related decisions vary significantly by gender. The finding that many couples make joint decisions suggests that an interesting avenue for future research would be to determine the nature of that joint decision making and whether it is collaborative, bargaining, or something else.

Prior research on tax-related decisions has not recognized that for approximately 40 percent of tax returns filed, the unit of study is not a single individual but a married couple.