Managerial Entrenchment through Earnings Management: A Critical Analysis in the Light of Shariah and Ethics

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The managers of commercial organizations often seek to obtain the shares of their organizations in order to benefit both monetarily and non-monetarily, a phenomenon known as managerial entrenchment. This involves possessing both shareholding and employment positions simultaneously within the organization. It may be achieved through various means and techniques; one of these is known as earnings management (EM). This study aims to critically examine the practice of managerial entrenchment through EM in light of Islamic jurisprudence and ethics. The current evaluation is based on the primary sources of the Shariah and contemporary fiqh. It was found that this practice often violates Shariah law and ethical principles. Employment and shareholding within an organization are permissible according to some interpretations of Hanbali and contemporary Hanafi fiqh but only with certain prerequisites. Managerial entrenchment through EM often fails to meet these prerequisites. It may result in lying, misrepresentation, and unjust acquisition of wealth. Therefore, it is necessary to control the trend of EM and managerial entrenchment in order to prevent ethical violations and maintain ethical business practices.