Welcome to the gray zone: Shades of honesty and earnings management

| Pascale Lapointe-Antunes (pictured) and Kareen Brown, Journal of Business Ethics

Everyone has varying shades of honesty, but what if people’s faces could tell more of the story than we thought? This research examined the influence of face-based judgments of CEO and CFO honesty on earnings management for the largest publicly traded companies in the United States.

Honesty in financial reporting is essential for building stakeholder trust and helping them make informed lending and investment decisions. Yet Generally Accepted Accounting Principles (GAAP) leave room for significant managerial discretion, leaving a grey zone where firms can make opportunistic financial reporting choices.

CFOs perceived to be less honest in the study’s photo review engaged in higher levels of accruals earnings management and real earnings management. The results indicated that alignment between the CEO and CFO also has an impact. If the two are perceived to be less honest, the extent of earnings management is more significant. However, the beneficial impact of perceived honesty on earnings quality is the most pronounced when the CEO and CFO are both perceived to be more honest. In addition, female CEOs and CFOs were less likely to engage in earnings management. This paper contributed to literature by bringing in the honesty dimension of personality when evaluating opportunistic accounting choices.

Lapointe-Antunes, P., Veenstra, K., Brown, K. & Li, H. (2022). Welcome to the Gray Zone: Shades of Honesty and Earnings Management. Journal of Business Ethics, 177, 125–149. https://doi.org/10.1007/s10551-020-04713-z

The impact of advertising creative strategy on advertising elasticity |

Filippo Dall’Olio, Journal of Marketing

When it comes to advertising, is what you say more important than how you say it? This paper shows that content is more important to style when it comes to influencing sales.

This study provides a comprehensive assessment of the impact of advertising creative strategy on advertising elasticity by focusing on an integrative framework that distinguishes between the form and function.

To understand how marketers can leverage creative ads to increase marketplace performance the researchers developed an integrative framework that captures the fundamental aspects of creative strategy: content (form) and execution (function). The project analyzed 2,251 creatives from 91 consumer packaged goods brands across a period of four years and revealed that function is the main driver of marketplace performance.

Function was evaluated using a three-dimensional representation of content (experience, affect, cognition) where form was examined for both executional elements and the use of creative templates. The results revealed that for function, experiential content has the greatest effect on elasticity, followed by cognitive and affective content.

The researchers found strategic thinking in advertising pays off and marketers should leverage the synergies between content and execution by focusing content on one specific dimension, matching it with consistent executional elements and varying the composition of the creative over time. Managers should focus on the big picture and base creative strategy on more than just tactics.

Dall’Olio, F., & Vakratsas, D. (2023). The Impact of Advertising Creative Strategy on Advertising Elasticity. Journal of Marketing, 87(1), 26–44. https://doi.org/10.1177/00222429221074960