Case Number: 5-211-251(A), Year Published: 2011
HBS Number: KEL574
Earnings Management, Ethics, Accounting, Real Earnings Management
In the (A) Case, Jason Phillips, Chief Financial Officer of a soup manufacturing business, is given the task of maximizing the value of the firm twelve months after the case is set. Although he does not want to break any legal rules, Jason is interested to see whether accounting and real action choices can be used to enhance the company’s financial position and increase its perceived value to investors. The case permits him to select from a menu of options, including decisions on product pricing, inventory levels, accounts receivables, leasing or purchasing a new machine and valuation or sale of securities. These choices are fed into an Excel spreadsheet which adjusts financial projections and accounting disclosures accordingly.
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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