Exploring Spirituality and Ethical Judgement in Earnings Management

Abstract

Purpose – This study explores how spirituality and ethical judgment interact in shaping managerial behavior related to earnings management in the banking sector, particularly within Indonesia's unique cultural and regulatory context. Research Methods – Adopting a phenomenological qualitative approach, this research investigates the lived experiences of six high-level executives from rural banks (BPR) in East Java. Data were collected through focus group discussions, in-depth interviews, and document analysis. Thematic analysis and data triangulation were employed to ensure analytical rigor. Findings – The findings reveal that earnings management is commonly perceived as a legitimate and strategic business practice, especially during high-pressure periods such as year-end reporting or pre-merger preparations. However, participants with deeply internalized spiritual values demonstrated greater ethical awareness and empathy, using spirituality as a moral filter when assessing the permissibility of financial actions. Rather than simply adhering to formal compliance, these individuals viewed regulatory rules as aligned with spiritual peace and professional integrity. Ethical judgments were not solely based on legality but also on fairness, responsibility, and broader stakeholder impact. Implication – The study contributes to the literature on ethical financial behavior by highlighting spirituality as a moderating force in ethically ambiguous decisions. It suggests that fostering spiritual and ethical awareness in financial institutions may enhance organizational integrity and transparency. The research calls for integrating ethical-spiritual development into leadership training and regulatory frameworks, particularly in high-context and religious societies.

Keywords: spirituality, ethical judgment, earnings management, banking ethics, Indonesia