Blockchain and Earnings Management
Malek El Diri · SSRN Electronic Journal · 2020
Blockchain is a decentralized open database which enhances transactions’ auditability and thus potentially affects financial reporting through its role in mitigating information asymmetry. Using a sample of 116 companies that have engaged with blockchain technology up to date, this study examines the impact of blockchain on earnings management. We find that the introduction of blockchain technology is associated with more earnings management, which can be attributed to (i) inherent inefficiencies of blockchain that render it unable to authenticate certain type of business transactions (ii) the financial technology illiteracy of most stakeholders and (iii) the potential reduction in profits due to the high costs of early-stage implementation. More specifically, blockchain enhances accrual but not real earnings management which shows that firms investing in blockchain do not want to jeopardise their long-term growth potential. The results contribute to increasing blockchain users’ awareness of its costs and benefits in financial reporting.