Gauging the True Rate of Corporate Earnings Manipulation
How many executives are manipulating their corporate earnings? New research says the truth is in how you ask about it.
By Joshua Herbold, Ph.D., CPA | Summer 2025

While headlines about scandalous frauds or large accounting restatements may grab our attention, it’s not always clear if these events and other forms of earnings manipulation are as common as they appear. Fortunately, we have new research to help us navigate this issue.
According to recent research by Assistant Professor Alex Vandenberg from the University of Illinois Urbana-Champaign, along with his colleagues Nicole Cade and Joshua Gunn (both from the University of Pittsburgh), more than 1 in 4 executives admitted to some form of earnings manipulation.
This high frequency rate may reveal systemic risks and pressures that impact financial reporting integrity, internal controls, and audit planning. And, no doubt, it has broad implications for standard-setting and enforcement initiatives, as it undermines public trust in corporations and their financial reporting—more importantly, it damages the credibility of the accounting profession.
Understanding this rate of earnings manipulation in the economy is essential for certified public accountants (CPAs) and regulators. In corporate accounting, understanding these trends can help CPAs enhance internal controls and advise boards on areas vulnerable to misreporting due to incentive pressures. For auditors, knowing how often earnings manipulation occurs can also support better industry and engagement risk assessments, allowing for more focused materiality judgments and more targeted procedures in high-risk areas, like revenue recognition, reserves, and accruals.
WHAT DOES EARNINGS MANIPULATION LOOK LIKE?
Accounting researchers broadly define earnings manipulation as any act in which managers intentionally intervene in the financial reporting process in order to obtain some benefit for themselves or their company. These acts can be within the scope of Generally Accepted Accounting Principles (GAAP) or not.
In their study, Vandenberg and his colleagues surveyed high-level executives from organizations in the Russell 3000 Index (mainly, chief financial officers, chief accounting officers, controllers, and CEOs) about manipulation of earnings at their companies.
While accounting researchers have studied earnings management for decades, this study is likely the first to directly ask executives about their own experience in this area. As Vandenberg explained in a recent podcast: “Before our study, most people assumed executives would never admit to manipulation when asked directly. There’s too much at stake: It could be illegal or cost them their job. So, no one had really tried asking them directly in a standard survey.”
In the survey, executives were asked about five categories of earnings management and their behaviors in each from 2018-2023. To the researchers’ surprise, a staggeringly high number of executives admitted that their companies had manipulated earnings during that timeframe. “Specifically, nearly 27% said their company had done it at least once in the past five years,” Vandenberg explains.
The five categories in the survey, along with definitions, examples, and the percentage of executives who reported at least one instance of earnings manipulation from that category, are as follows:
- Real Earnings Management (18%): Changing an operational activity to meet a near-term target at the expense of long- term value. For example: A company might delay necessary maintenance or cut research and development spending in the fourth quarter to reduce expenses to meet quarterly earnings expectations, even though this harms long-term asset reliability or innovation.
- Disclosure Obfuscation (8.8%): Altering a disclosure to make unfavorable information more difficult to find or understand. For example: A company could attempt to hide the financial impact of a major product recall by using vague language or burying the disclosure in a complicated footnote.
- Accrual Manipulation (6.6%): Using accounting choices and discretion allowed by GAAP to report earnings that don’t accurately represent the company’s economic performance. For example: A company could reduce expenses by underestimating bad debt or warranty expenses or by assuming longer useful lives for assets.
- Material Omissions (3.9%): Deliberately withholding information that could discourage investors from investing in the company. For example: A company may fail to disclose that a key contract with a major customer is about to be terminated.
- Accounting Fraud (0%): Intentionally misstating information in financial statements with the intent to mislead users. For example: A manager might recognize revenue on nonexistent transactions in order to meet an aggressive growth target.
These percentages are likely to represent a “floor” or lower bound on the actual rate of each type of earnings manipulation, according to the researchers. While executives are unlikely to report manipulations that haven’t occurred, they could be reluctant to admit to behaviors that are illegal or that might be considered undesirable.
According to the study, “estimates obtained via [survey responses] will be downwardly biased if executives who have manipulated earnings are more likely to lie, skip questions, or refuse to participate in the study compared with executives who have not manipulated earnings.” In survey research, this is known as the social desirability bias.
GETTING DOWN TO THE TRUTH
To address social desirability bias, the researchers supplemented their survey with something that hadn’t been done in accounting research before: a list experiment. In a list experiment, respondents are randomly assigned to receive either a list of non-sensitive items or the same list plus a sensitive item. Then, they report how many (but not which) items apply to them.
By comparing the average counts between groups, researchers can estimate the frequency of sensitive behaviors without individuals directly disclosing them. For instance, an example of a non-sensitive item may be: “My commute to work is 45 minutes or longer,” or “My company has an employee-friendly vacation policy.” An example of a sensitive item may be: “I’m aware of a time in the past five years when my company materially misrepresented information in the financial statements with the intent to mislead.”
According to Vandenberg, the technique is indirect and allows executives to answer honestly while maintaining a high level of plausible deniability: “It’s so strong, in fact, that no one—including us—can know whether any individual admitted to manipulation. But as researchers, we can use the overall results to estimate how many executives manipulated earnings.”
Of course, there are downsides to using a list experiment—one being that it adds statistical noise to the data. This means that much larger sample sizes are often required to obtain statistically reliable results (here, the researchers were able to get responses from nearly 1,000 executives).
However, even with this drawback, for two of the categories of earnings manipulation, the researchers found estimated frequencies that were higher than the estimates from the direct survey. For example, in the real earnings management category, the list experiment frequency was 29.9% versus 18% in the survey, and in the accounting fraud category, the list experiment frequency was 12.4% versus 0% in the survey.
“It’s really interesting because, in the direct survey, exactly zero executives admitted to fraud. But in the list experiment—which is designed to promote honest responses—the results suggest more than 12% of companies engaged in it,” Vanderberg says.
Overall, the researchers’ findings suggest that when you give executives a way to answer honestly and privately, the rate of earnings manipulation comes out a bit higher.
Joshua Herbold, Ph.D., CPA, is a teaching professor of accountancy and associate head in the Gies College of Business at the University of Illinois Urbana-Champaign and sits on the Illinois CPA Society Board of Directors.
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