Evaluate the environmental factors that contribute to corporate management’s need to manage corporate earnings to align with market expectations, indicating the potential long- term risks to financial performance and sustainability.

Due to external influences, corporate management often tries to balance earnings with the market’s expectations. This can be due to external factors such as investor sentiment, macroeconomic conditions and regulatory requirements, which all have an impact on a company’s financial performance. As an example, a change in the investor’s sentiment or in the market trend may force companies to make adjustments to their earnings to reach perceived targets or to remain competitive. Additionally, macroeconomic uncertainties such as trade wars or recessions can cause companies to alter their reported figures so that they appear more attractive.

In addition, regulators can also exert pressure on corporate management to choose how they report their financials out of fear for retribution. This practice of “creative accounting” has the potential for long-term risks if not managed properly as it could lead to inaccurate projections leading investors astray while also creating an environment that encourages manipulation instead of transparency which is essential for ensuring capital markets continue functioning efficiently.

The corporate management team should be well-versed in environmental issues that may impact the need to effectively manage earnings. They can then better combat these potential issues and prevent them from becoming bigger problems.