Effects of Manager Tacit Knowledge on Earnings Management Behavior at Different Levels of Monitoring: A behavioral approach

Empirical researches show that firm executives usually use discretionary accruals to earnings management, in such a way that it maximizes their bonus. On the other hand, these results show effects of the monitoring process on reducing earnings management. But, past researches has no response to the fundamental question how managers learn earnings management methods and how they adjust their actions against monitoring approaches? It is expected that this behavior is achieved implicitly and over time, which is called tacit knowledge. This research is aimed to investigate the effects of tacit knowledge on earnings management behavior at different levels of monitoring. This research is a positive and experimental research (using controlled environment). In the experiment plan, monitoring is conducted through internal audit. For this purpose, a scenario is designed for what should be experimented. The research results show that monitoring has a decreasing effect on the probability of earnings management for people with higher tacit knowledge; however, it has no significant effect on the probability of earnings management for people with less tacit knowledge.