Decoupled Earnings: An Institutional Perspective Of The Consequences of Maximizing Shareholder Value

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Recent accounting scandals have brought focus on the role of management in financial statement manipulation. This focus on micro-behavior does not capture the complexities of earnings management. Taking an institutional rather than agency theory approach, earnings management is posited as a decoupled behavior. A behavior that results from not only agency based motivations of self-interests, but also regulative, normative, and cultural-cognitive legitimacy pressures. Conformity to the central logic of maximizing shareholder value found in the U.S. financial market institutional field provides the context in which to explore earnings management as a decoupled behavior. Insights for earnings management include the blending of agency and institutional theory perspectives to gain a more complete understanding of the behavior and the positing of a continuum of earnings management conducive to this merger. Institutional theory benefits from exploring the nesting in multiple institutional fields.

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