Governance implications of the effects of stakeholder management on financial reporting

Purpose: The purpose of this paper is to test whether effective stakeholder management results in transparent financial reporting. Design/methodology/approach: This paper uses a linear model informed by stakeholder theorizing and established measures of stakeholder management, earnings quality, and earnings management. Findings: Organizations exhibiting effective stakeholder management have higher earnings quality and are less likely to engage in discretionary earnings management. Research implications: Future research should carefully sort out the meaning of different measures of earnings quality, should clarify cross-national institutional differences to reconcile contradictions in extant research, and should discover the underlying governance orientations that shape decision-making processes and outcomes. Practical implications: Governing bodies must take into account how underlying organization cultures shape governance regimes, which may determine the transparency with which organization actors interact with various stakeholder groups. Originality/value: This study establishes a positive link between effective stakeholder management and transparent financial reporting, suggesting that both may be artifacts of deeper underlying orientations toward accountability, transparency, and managerial discretion.