Recent reports suggest that employees have concerns about their company’s leadership and ethical environment. Despite more stringent regulations, top executives are continuing to pursue aggressive financial reporting practices by managing earnings. In this study, the authors find that individuals have more significant concerns about the workplace environment when the chief financial officer (CFO) manages earnings that result in personal gain relative to when the CFO manages earnings that benefit other stakeholders (i.e., employees and investors). Further, the authors show that this negative effect of earnings management for personal gain on workplace environment quality becomes more prominent when the control environment is weak and when the CFO possesses accounting expertise. The authors add to the body of academic knowledge on financial reporting, ethical leadership, and the workplace environment. Business practitioners can use our study to inform their decisions, particularly those about financial reporting and managing the workplace environment.

This research investigates the influence of company financial distress on earnings management by using agency and signaling theories. This research compares the explanations between agency and signaling theories on this relationship. Agency theoryexplains that company financial distress positively influences earnings management, but signaling theory predicts that company financial distress negatively influences earningsmanagement. Company financial distress is measured by using Ohlson model. Kang- Sivaramakrishnan model is used to measure discretionary accruals, a measure of earningsmanagement. Empirical data are analyzed by using ordinary least square regression and testing of difference between two proportions from one group. Results of data analysis rejectagency theory explanation, and support signaling theory explanation. This research finds that company financial distress negatively influences discretionary accruals.Keywords: Financial distress, earnings management, agency theory, signaling theory