The moderating role of corporate ethics on the relationship between blockchain technology and classification shifting: European evidence

Purpose The present work aimed to explore the relationship between blockchain technology adoption and firm behavior to misclassify core expenses as special items in the income statement to inflate core earnings (i.e. classification shifting). It examined the moderating effect of corporate ethics on this relationship. Design/methodology/approach Data from 285 European companies were selected from the STOXX 600 index between 2019 and 2023. The moderating effects were tested using panel data and multiple regression techniques. We employed the feasible generalized least squares method, estimated on panel data. For robustness analyses, the authors conducted additional tests by examining the dynamic dimension of the dataset using the generalized method of moments and the two-stage least squares to control for endogeneity issues. Additionally, the authors included a comparative analysis of the two dominant countries, the UK (common law system) and France (civil law system). Findings The regression results demonstrate a positive relationship between unexpected core earnings and non-recurring items, confirming that European companies engage in classification shifting. They also reveal that European companies’ application of blockchain technology can significantly inhibit classification shifting practices. In addition, corporate ethics moderate this relationship negatively and significantly. Practical implications Our findings have practical implications for regulators and managers interested in enhancing blockchain technology intensity, helping companies envision future growth opportunities and decreasing manipulation practices in a context where ethics are central to corporate valuation. Originality/value To the best of the authors’ knowledge, this is the first study to examine the moderating effect of corporate ethics on the association between blockchain technology adoption and earnings management using classification shifting in the European context.