Net Income Is a Key Number for Shareholders,creditors,and Analysts Alike

question 47

Essay

Net income is a key number for shareholders,creditors,and analysts alike.Indeed,analysts' projections of net income for a company are viewed as a standard a company must achieve for a period of time.Failure to achieve this standard can have devastating effects on a company's stock price and its management.
The importance of net income in the eyes of analysts and others can tempt managers to take steps to ensure that the appropriate level of net income is achieved.The process of manipulated net income to achieve a desired level of earnings is referred to as earnings management.
Required:
List and explain the economic motivations for earnings management.

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Definitions:

Neuroticism

A personality trait characterized by a tendency towards anxiety, moodiness, worry, and other emotional states.

Traits of Anxiety

Characteristics or behaviors commonly associated with anxiety, including excessive worry, nervousness, restlessness, and physical symptoms like increased heart rate.

Impulsiveness

The tendency to act on a whim, displaying behavior characterized by little or no forethought, reflection, or consideration of the consequences.

Ego-resilient

Describes an individual's ability to adapt to stressors and return to a baseline state of functioning effectively after experiencing stress.