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This paper undertakes an extensive and systematic review of the literature on earnings management (EM) over the past three decades (1992–2022). Furthermore, the study identifies emerging research themes and proposes future avenues for further investigation in the realm of EM.

For this study, a comprehensive collection of 2,775 articles on EM published between 1992 and 2022 was extracted from the Scopus database. The author employed various tools, including Microsoft Excel, R studio, Gephi and visualization of similarities viewer, to conduct bibliometric, content, thematic and cluster analyses. Additionally, the study examined the literature across three distinct periods: prior to the enactment of the Sarbanes-Oxley Act (1992–2001), subsequent to the implementation of the Sarbanes-Oxley Act (2002–2012), and after the adoption of International Financial Reporting Standards (2013–2022) to draw more inferences and insights on EM research.

The study identifies three major themes, namely the operationalization of EM constructs, the trade-off between EM tools (accrual EM, real EM and classification shifting) and the role of corporate governance in mitigating EM in emerging markets. Existing literature in these areas presents mixed and inconclusive findings, suggesting the need for further theoretical development. Further, the study findings observe a shift in research focus over time: initially, understanding manipulation techniques, then evaluating regulatory measures, and more recently, investigating the impact of global accounting standards. Several emerging research themes (technology advancements, cross-cultural and cross-national studies, sustainability, behavioral aspects and non-financial indicators of EM) have been identified. This study subsequent analysis reveals an evolving EM landscape, with researchers from disciplines like data science, computer science and engineering applying their analytical expertise to detect EM anomalies. Furthermore, this study offers significant insights into sophisticated EM techniques such as neural networks, machine learning techniques and hidden Markov models, among others, as well as relevant theories including dynamic capabilities theory, learning curve theory, psychological contract theory and normative institutional theory. These techniques and theories demonstrate the need for further advancement in the field of EM. Lastly, the findings shed light on prominent EM journals, authors and countries.

This study conducts quantitative bibliometric and thematic analyses of the existing literature on EM while identifying areas that require further development to advance EM research.

This whistleblowing case study engages students in discussions about when and how to disclose differences of opinion on a revenue recognition matter with higher-ups in an organization. Factors to consider include the morality of whistleblowing, confidentiality obligations, the rules of conduct in the American Institute of Certified Public Accountants (AICPA) Code, Sarbanes–Oxley Act (SOX), Dodd–Frank, and the US Supreme Court ruling in Digital Realty, Inc. v. Somers that addresses when to report matters to the Securities and Exchange Commission (SEC). Case questions are designed to promote students’ critical thinking skills, ethical reasoning skills, and decision-making. A flowchart of AICPA ethics rule 2.130.020 (Subordination of Judgment) provides the framework for making decisions when differences exist in financial reporting. The case provides learning objectives, implementation guidance, and teaching notes. The case was used in an accounting ethics course taught at the undergraduate senior level but can also be used in auditing, fraud examination, and advanced financial reporting courses.

Exploiting a novel measure of innovation, the authors investigate whether independent directors improve innovation efficiency. This novel measure of innovation captures the extent to which the firm generates revenue from its research & development and is, therefore, more economically meaningful. The authors also use a text-based measure of innovation.

The authors rely on a quasi-natural experiment based on the passage of the Sarbanes-Oxley Act of 2002 that compelled certain firms to raise board independence. The difference-in-difference analysis is far less vulnerable to endogeneity and is more likely to show a causal influence, rather than a mere association.

The results show that more independent directors improve innovation efficiency significantly. Specifically, firms forced to raise board independence experienced a much higher increase in innovation than those not required to change their board composition. The authors also explore another novel measure of innovation, a text-based metric of innovation.

The research is original in several ways. First, the authors take advantage of an exogenous regulatory shock as a quasi-natural experiment. This approach is far less susceptible to endogeneity. Second, the authors use a novel measure of innovation efficiency, i.e. research quotient, which is more economically meaningful. Finally, the authors use a unique measure of innovation derived from powerful textual analysis.

Post-Sarbanes Oxley Act (SOX), the audit committee has been empowered greatly to play a central role in the corporate governance of firms. Embedded in agency theory, this study aims to examine the effect of the audit committee on the likelihood by firms to pay dividends.

The study population is US firms in the Institutional Shareholder Services (ISS) database from 2007 to 2018. The authors apply the multivariate logit fixed-effect regression for the analyses after conducting the appropriate statistical tests.

From the results of the research model, the authors find that there is a positive relationship between the size and gender diversity of the audit committee and the propensity to pay dividends suggesting that a larger audit committee with substantial women representation improve the information environment in firms leading to higher dividend distribution. The extent of busyness of the audit committee impacts negatively on the propensity to pay dividends. The results are driven by high-performing firms and not driven by specific levels of firm size.

The findings of the study give impetus to the audit committee as an important component of the corporate governance mechanism that advances the interest of stakeholders. Thus, efforts that seeks to promote the audit committee’s resourcefulness must be embraced by all stakeholders.

To the best of the authors’ knowledge, this study is the first to focus on audit committee and dividend payout policy of US firms post-SOX. The study demonstrates how the audit committee characteristics including its size, gender diversity and busyness affect dividend policy by mitigating information asymmetry problems.

The purpose of this study is to extend the Fraud Diamond Theory to celebrity Special Purpose Acquisition Companies (SPACs) and investigate their post-Initial Public Offering (IPO) stock market performance.

After obtaining a sample of celebrity SPACs from the Spacresearch.com database, fraud risk characteristics were obtained from Lexis Nexus searches. Buy and hold abnormal returns were calculated for celebrity SPACs versus a small-cap equity benchmark for time intervals after IPO, and multiple regression analysis was performed to examine the relationship between fraud risk features and post-IPO returns.

Celebrity SPACs exhibit Fraud Diamond characteristics and significantly underperform a small-cap stock portfolio on a risk-adjusted basis after IPO.

This study only examines celebrity SPACs that conducted IPOs on the NYSE and NASDAQ/AMEX and does not include those that are traded on the Over the Counter Bulletin Board (OTCBB).

Celebrity endorsement of SPAC vehicles attracts investors who may not be properly informed regarding the risk characteristics of SPACs. Accordingly, investors should be warned that celebrity SPACs underperform a small-cap equity portfolio and exhibit significant elements of fraud risk.

The use of celebrity endorsement as a marketing device to attract investment in SPACs has regulatory implications.

To the best of the authors’ knowledge, this paper is the first to examine the fraud risk characteristics and post-IPO performance of celebrity SPACs.

This paper examines the effect of firms’ takeover susceptibility on the manipulation of financial statements through classification shifting.

The paper applies ordinary least squares regression (OLS) with fixed effects analyses to a sample of United States listed firms over the period 1992–2014. We use takeover index as a proxy for takeover susceptibility of firms, with high values representing higher takeover susceptibility and lower values representing lower takeover susceptibility.

The study finds that firms engage in classification shifting through core expenses, suggesting that takeover threats reduce the incentive to manage earnings through classification shifting. We also find that takeover susceptibility improves the monitoring mechanism for firms with low profitability because these firms have greater incentives to engage in classification shifting. Finally, we find that the Sarbanes–Oxley Act strengthens the monitoring mechanism influenced by takeover threats. Overall, the results provide evidence of the important role of takeover susceptibility in mitigating classification shifting. Our results are robust to a battery of sensitivity tests.

The results emphasise the disciplinary role of the legal environment around corporate takeovers. The study suggests that policymakers and regulators should be cognisant of antitakeover laws which may increase agency conflicts between managers and shareholders and promote managerial self-seeking behaviours such as classification shifting.

The paper highlights the important role of takeover threats as an external governance mechanism to mitigate classification shifting which is detrimental to investors’ value. From prior literature, this study is the first to provide evidence of the effect of takeover threats on classification shifting.

This study aims to examine the determinants of Foreign Corrupt Practices Act (FCPA) violations and consequences of FCPA enforcements.

This paper uses publicly available data from Compustat, I/B/E/S and Thomson Reuters databases, combined with Securities and Exchange Commission (SEC) and Department of Justice (DOJ) cases, to extract insights on FCPA violations and enforcements using econometric approaches.

The main determinants of FCPA violations appear to be firm size, multinational structure, country corruption and Sarbanes-Oxley Act control weaknesses. Traditional misreporting risks (F-score and M-score) do not predict FCPA violations. This study discovers significant differences between FCPA violations by motivation, as in, sale generation, rent extraction or cost evasion. Bribes motivated by sale generation or rent extraction are partially driven by the extent of the firm’s global operations, whereas bribes motivated by cost evasion relate to internal influences. This study also finds that enforcement is more salient for criminal violations (DOJ enforcement), compared to civil violations (SEC enforcement).

This research provides new insights into the determinants of FCPA violations while underscoring the need for effective measures to combat bribery and promote ethical business practices. This research contributes to the ongoing efforts to curtail bribery, offering valuable insights into the characteristics of firms more likely to engage in bribery and contexts in which these activities occur. It provides critical implications for regulatory bodies, highlighting the differential responses of firms to varying types of enforcement, namely, criminal versus civil, as the authors observe greater decreases in internal control weaknesses following DOJ enforcement compared to SEC enforcement.

For enforcement agencies, the findings underscore the importance of rigorous criminal enforcement against FCPA violations, highlighting the improved control environments prompted by DOJ actions. Managers will find this research relevant, as it demonstrates that a firm’s entry into international markets substantially elevates the risk of its representatives engaging in bribery with foreign officials. In addition, the results are of interest to regulators, revealing that the underlying motivations driving a firm’s activities can significantly alter the factors to consider that might lead to an FCPA violation.

This paper is the original work of the authors and explores the determinants and consequences of FCPA violations and enforcement actions since 2002. To the best of the authors’ knowledge, it is the first to explore bribe determinants by their motive and documents industry-wide benefits arising from criminal enforcement.

The purpose of this research is to examine the impact of audit committee financial experts on the risk of financial corruption in public companies.

A time-lagged, matched-pairs sample of 352 corporations was utilized to test the study's hypotheses (176 financially corrupt firms plus 176 compliant firms). To uncover financially corrupt firms, 2,895 Accounting and Auditing Enforcement Releases from the Securities and Exchange Commission were thoroughly evaluated.

The results show that financial experts on audit committees generally increased financial corruption. However, the impact was reversed when audit committees had three or more financial experts, showing that having at least three financial experts reduced financial corruption.

The study's findings call into question the long-held practice of appointing at least one financial expert to audit committees. This study offers a novel approach to improve corporate oversight and reduce financial corruption by having at least three financial experts on audit committees.

The purpose of this study is to investigate whether the likelihood that a firm will face financial statement fraud litigation is affected by the disclosure of internal control material weaknesses (MW) and the “busyness” of a firm’s board of directors.

The results are derived from logistic regression models and data are collected from the Audit Analytics database augmented by data from CompuStat, the Stanford Law School website and the SEC Accounting and Auditing Enforcement Releases. The authors also test for endogeneity with a propensity score matching procedure.

The authors find that an MW report is strongly associated with the likelihood of subsequent financial statement fraud litigation, and that the influence of entity-level MW on litigation likelihood is stronger than that of account-level MW. Moreover, the number of outside board directorships significantly increases the influence of entity-level MW on the likelihood of litigation, indicating that board of directors’ busyness significantly increases the risk of litigation.

Previous research notes that board members holding multiple directorships cannot effectively oversee the financial reporting process and, thus, are associated with poorer governance. The authors extend this implication of board busyness to the association between disclosure of MW type and the filing of subsequent litigation alleging financial statement fraud. To the best of the authors’ knowledge, no other research has done so.

We review and synthesize the existing research on directors' and officers’ (D&O) liability insurance. Our objectives are (1) to examine the institutional forces and regulatory requirements that have influenced the development of D&O liability insurance; (2) to identify the factors that influence firms to purchase D&O liability insurance and explore the consequences associated with its usage and (3) to identify gaps in the current literature and provide recommendations for future research on D&O liability insurance.

We perform a systematic literature review (SLR) using the Preferred Reporting Items for a Systematic Review of Meta-Analysis (PRISMA) guidelines to examine archival studies that investigate the determinants and consequences of D&O liability insurance. Using a Boolean search strategy on the “Web of Science” (WoS) and PRISMA selection criteria, we review 64 published archival research articles and three working papers from 1987 to October 2023.

Our review reveals that disclosing detailed information regarding D&O liability insurance, such as total insurance premiums and coverage limit, is predominantly voluntary, except in Taiwan. Our findings suggest that the decision to purchase D&O liability insurance is influenced by litigation risk, which is determined by factors such as firm size, complexity and corporate governance variables. We also find that D&O liability insurance has implications for financial reporting, audit outcomes, investment behavior and capital market performance.

In the post-COVID era, where firms face pressure due to financial constraints, our research emphasizes the practical importance of carefully considering and understanding the impact of D&O liability insurance, particularly as it concerns the demand for such insurance.

To the best of our knowledge, this study represents the first systematic review of previous research on D&O liability insurance. Our review highlights some research gaps, particularly in relation to the implications for financial reporting practices, auditing outcomes, firm investment behavior and capital market consequences.