IntroductionAccording to the Encyclopedia of Business in Today's World, earnings management can be defined simply as "an accounting process by which managers manipulate reported earnings to achieve private gain" . Today, most companies participate in earnings management to maximize profits and stock value and reduce fluctuations. In the United States, companies must comply with U.S. generally accepted accounting principles; however, there is room for interpretation and judgment, which leads to results management. Although earnings management does not break the law, many view it as opportunistic and believe that it can have a negative effect on the quality of earnings and weaken the credibility of financial reporting. However, some believe that earnings management is beneficial; “Recent studies have shown that earnings management can be beneficial because it potentially improves the informational value of earnings.” This article will review the different motivations for earnings management, also called creative accounting in European countries. There are four obvious motivations for earnings management that will be discussed: compensation, income smoothing, capital market pressures, and financial demands. Compensation Agency theory explains the relationship between shareholders and company managers and suggests that corporate activities are governed by the role of contracts in facilitating voluntary exchanges. According to agency theory, conflicts exist when managers have selfish motives and do not always act in the best interests of the company, but to increase their own wealth at the expense of other shareholders. The reason for this conflict is that shareholders want to maximize the return on their investments...... middle of paper ......is that even in the absence of pressures in the financial markets, companies are still encouraged to manage their profits. They found that companies in countries where financial and tax accounting are highly aligned manage their profits to reduce taxes.ConclusionAfter evaluating this literature, it is clear that many companies today participate in creative accounting in order to maximize profits and stock value and reduce profit fluctuations. . Numerous studies support this data and suggest that the primary motivators for earnings management are compensation, income smoothing, capital pressures, and financial demands. Although some believe that creative accounting has a negative effect on earnings quality and weakens the credibility of financial reporting, it is clear that many people continue to use earnings management techniques for a variety of reasons..