Case Detail

Case Summary

Dragon Soup and Earnings Management (B)

Case Number: 5-211-251(B), Year Published: 2011

HBS Number: KEL575

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Authors: Craig Chapman

Key Concepts

Earnings Management, Ethics, Accounting, Real Earnings Management

Abstract

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?

Learning Objectives

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.

Number of Pages: 5

Extended Case Information

Teaching Areas: Accounting

Teaching Note Available: Yes

Geographic: United States

Industry: Manufacturing, Durable Commodity Consumer Products

Organization Size: Small

Decision Maker Position: CFO

Decision Maker Gender: Male

Year of Case: 2010