Dissertation: Earnings Management More Complex than Previously Understood

​The doctoral dissertation of Mikko Kepsu, Master of Science in Economics and Business Administration, focuses on earnings management in the process of preparing corporate financial reports. His research indicates that earnings management is a complex phenomenon strongly influenced by the interpretations and views of those involved.

The accounting results of a company are an extremely important, frequently monitored indicator of its financial state. Corporate managements are aware of the importance of the accounting result, and may resort to earnings management to purposefully alter financial reports. This can impair the reliability and transparency of financial statements.

The aim of Mikko Kepsu's research is to analyse earnings management in the process of preparing corporate financial reports. Unlike mainstream research, Kepsu based his dissertation on a case study, analysing a listed company for two years, mainly through interviews.

In his dissertation, Kepsu questions the grounds of earlier research, namely the assumption that there is one set of unambiguous, correct results. Kepsu's research suggests that the concept of earnings management is more complex than previously understood, making it open to various interpretations. Earnings management is socially constructed and deeply intertwined in the process of preparing corporate financial reports.

The dissertation also reveals that earnings management is much more actor-dependent than the prior literature has assumed. In particular, chief finance officers are key actors in earnings management, as they are mainly responsible for profit calculation and the preparation of the balance sheet. There are significant differences between actors, who may have notably different opinions on earnings management and on what result is eventually reported.

The research also indicates that earnings management processes are dynamic chains of events, in which earnings management situations are often resolved one by one, while exercising the maximum, possibly predetermined, discretion.

In addition to its academic merit, Kepsu's research is highly topical, as wide implementation of the International Financial Reporting Standards (IFRS) has opened up various opportunities for discretion in, for example, valuation allocation issues based on forecasts. The results of the dissertations are of practical importance to companies' stakeholders, such as investors and financers, who analyse financial reports and base their decisions on them.

Mikko Kepsu defended his doctoral dissertation in Accounting and Finance on 1h June 2012. The opponent was Professor Mikko Järvenpää (Jyväskylä University School of Business and Economics) and Custodian Hannu Schadewitz.