Earnings Management and Financial Reporting Quality: A Systematic Literature Review of Mechanisms, Determinants, and Consequences (2000 to 2024)

Abstract

This systematic literature review synthesizes empirical and theoretical research on earnings management and financial reporting quality published between 2000 and 2024. Following PRISMA guidelines, 118 peer-reviewed articles were selected from an initial pool of 2,341 records sourced from Web of Science, Scopus, and SSRN. The review maps the conceptual landscape of earnings management across its primary manifestations: accruals-based earnings management, real activities manipulation, and classification shifting. Key determinants identified include audit quality, corporate governance mechanisms, institutional ownership, managerial compensation structures, and financial distress proximity. Consequences of earnings management documented in the literature span reduced earnings informativeness, elevated cost of capital, distorted investment allocation, and reputational penalties following enforcement actions. The review identifies three underexplored areas warranting future research: the interaction between IFRS adoption and earnings management in emerging markets, the role of artificial intelligence in both enabling and detecting manipulation, and the long-term consequences of real activities manipulation for firm innovation and sustainability. The paper contributes a structured synthesis that advances both theoretical understanding and practical guidance for auditors, regulators, and financial statement users.