Case Number: 5-211-251(B), Year Published: 2011
HBS Number: KEL575
Earnings Management, Ethics, Accounting, Real Earnings Management
In the (B) Case, Ben Kerr, Chief Investment Officer at one of Dragon’s main competitors, considers the financial statements produced by Dragon to unravel any earnings management behavior and establish a true value for the company. Although the case can be focused on the accounting consequences of real decisions, a richer discussion is obtained when considering the ethical angles of the decision process. In particular, how much ‘earnings management’ should be pursued and what types of behaviors are simply going to be unraveled by investors?
To explore the concepts of ‘legal’ earnings management as compared to true value optimization. To explore whether sophisticated investors misled by such behaviors. To explore the management of information flows to investors.
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