The moral masking behavior of management after real earnings management: An analysis of management's integrity commitment

Abstract

This study examines the link between genuine earnings management and management's integrity commitment using data from A-share listed firms on the Shanghai and Shenzhen stock exchanges (2007–2021). Findings indicate that following genuine earnings management, management tends to emphasize integrity in the MD&A section of annual reports, suggesting moral camouflage in response to negative moral emotions. This behavior is more pronounced with higher information asymmetry between management and investors, amplifying the tendency towards moral camouflage. Further analysis shows that post-earnings management, there is no significant increase in charitable contributions or CSR performance, and agency costs remain high, underscoring a preference for moral camouflage over moral purity. Additionally, management's integrity commitment does not affect analysts' future market valuations or reduce the likelihood of regulatory inquiries. The study also finds that the relationship between earnings management and integrity commitment strengthens under increased moral pressure. This research provides theoretical insights into executive behavior driven by negative moral emotions and offers practical implications for investors, auditors, and regulators.