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Unknown Unknowns: Knightian Uncertainty and Corporate Opportunistic Earnings Management

Shouyu Yao, Xiaochen Xie, Sabri Boubaker Orcid Logo, Ahmet Sensoy, Feiyang Cheng Orcid Logo

British Journal of Management

Swansea University Author: Sabri Boubaker Orcid Logo

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DOI (Published version): 10.1111/1467-8551.12705

Abstract

Uncertainty is inherent in the real world. Faced with Knightian uncertainty caused by many extreme events, this paper focuses on the analysis of corporate opportunistic earnings management behaviour under the unknown unknowns framework. This paper finds that with an increase in market Knightian unce...

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Published in: British Journal of Management
ISSN: 1045-3172 1467-8551
Published: Wiley 2023
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URI: https://cronfa.swan.ac.uk/Record/cronfa64810
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first_indexed 2023-11-14T15:17:43Z
last_indexed 2023-11-14T15:17:43Z
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spelling v2 64810 2023-10-24 Unknown Unknowns: Knightian Uncertainty and Corporate Opportunistic Earnings Management 43999fff86cd8a29f4815fb4dfa47729 0000-0002-6416-2952 Sabri Boubaker Sabri Boubaker true false 2023-10-24 BAF Uncertainty is inherent in the real world. Faced with Knightian uncertainty caused by many extreme events, this paper focuses on the analysis of corporate opportunistic earnings management behaviour under the unknown unknowns framework. This paper finds that with an increase in market Knightian uncertainty, corporations will significantly adopt both accrual earnings management and real earnings management. More importantly, when compared with upward earnings management, the results indicate that Knightian uncertainty will lead corporations to implement more downward earnings management. Our results are consistent with the big bath theory, which is also verified through the adjustment of non-recurring profit and loss accounts. To understand the real process of earnings management, we also discuss the strategic choice behaviour of earnings management under different heterogeneous situations. Journal Article British Journal of Management Wiley 1045-3172 1467-8551 Knightian Uncertainty, unknown unknowns framework, earnings management, big bath theory 4 1 2023 2023-01-04 10.1111/1467-8551.12705 http://dx.doi.org/10.1111/1467-8551.12705 COLLEGE NANME Accounting and Finance COLLEGE CODE BAF Swansea University National Natural Science Foundation of China (Grant Number: 72073101); The Turkish Academy of Sciences - Outstanding Young Scientists Award Program (TUBA-GEBIP)) 2023-11-14T15:17:39.9480274 2023-10-24T16:07:37.0779569 Faculty of Humanities and Social Sciences School of Management - Business Management Shouyu Yao 1 Xiaochen Xie 2 Sabri Boubaker 0000-0002-6416-2952 3 Ahmet Sensoy 4 Feiyang Cheng 0000-0001-9344-1582 5
title Unknown Unknowns: Knightian Uncertainty and Corporate Opportunistic Earnings Management
spellingShingle Unknown Unknowns: Knightian Uncertainty and Corporate Opportunistic Earnings Management
Sabri Boubaker
title_short Unknown Unknowns: Knightian Uncertainty and Corporate Opportunistic Earnings Management
title_full Unknown Unknowns: Knightian Uncertainty and Corporate Opportunistic Earnings Management
title_fullStr Unknown Unknowns: Knightian Uncertainty and Corporate Opportunistic Earnings Management
title_full_unstemmed Unknown Unknowns: Knightian Uncertainty and Corporate Opportunistic Earnings Management
title_sort Unknown Unknowns: Knightian Uncertainty and Corporate Opportunistic Earnings Management
author_id_str_mv 43999fff86cd8a29f4815fb4dfa47729
author_id_fullname_str_mv 43999fff86cd8a29f4815fb4dfa47729_***_Sabri Boubaker
author Sabri Boubaker
author2 Shouyu Yao
Xiaochen Xie
Sabri Boubaker
Ahmet Sensoy
Feiyang Cheng
format Journal article
container_title British Journal of Management
publishDate 2023
institution Swansea University
issn 1045-3172
1467-8551
doi_str_mv 10.1111/1467-8551.12705
publisher Wiley
college_str Faculty of Humanities and Social Sciences
hierarchytype
hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
department_str School of Management - Business Management{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Management - Business Management
url http://dx.doi.org/10.1111/1467-8551.12705
document_store_str 0
active_str 0
description Uncertainty is inherent in the real world. Faced with Knightian uncertainty caused by many extreme events, this paper focuses on the analysis of corporate opportunistic earnings management behaviour under the unknown unknowns framework. This paper finds that with an increase in market Knightian uncertainty, corporations will significantly adopt both accrual earnings management and real earnings management. More importantly, when compared with upward earnings management, the results indicate that Knightian uncertainty will lead corporations to implement more downward earnings management. Our results are consistent with the big bath theory, which is also verified through the adjustment of non-recurring profit and loss accounts. To understand the real process of earnings management, we also discuss the strategic choice behaviour of earnings management under different heterogeneous situations.
published_date 2023-01-04T15:17:43Z
_version_ 1782553052247490560
score 11.013507

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