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The Dark Side of Socially Mediated Rewards: How Narcissism and Social Status Affect Managerial Reporting
Abstract
We extend prior research on performance reporting by examining how individual traits and environmental features affect the willingness of managers to report honestly. Drawing on research in psychology, we expect narcissism and the desire for social status to compete with preferences for honesty. To test our predictions, we use an experimental research design that orthogonalizes financial incentives (cash compensation) from non-financial incentives (social status). Consistent with our predictions, we find that narcissism, a stable and measurable personality trait, induces participants to inflate reported performance, but only when the participant views the task as important. We also provide evidence that these influences are especially pronounced when managers feel challenged to be the top performer. In addition, we find that even non-narcissistic participants are prone to inflate reported performance in settings that reward high reported performance with social status. Together, these results have several implications related to hiring practices and the design of control systems, as well as audit planning.
... Psychology research suggests such behavior is typical of narcissists, as a variety of studies demonstrate that symptoms of narcissism include an excessive sense of self-entitlement, willingness to exploit others to one's own ends, domination of decision processes, failure to take feedback from others, and a need for constant recognition and reward (Wink 1991;Oliver and Robins 1994;Rhodewalt and Morf 1995;Lakey et al. 2008;Goncalo et al. 2010;Nevicka et al. 2011;Tamborski et al. 2012). Consistent with a willingness to engage in unethical behavior, narcissists have been shown to be more likely to, among other things, cheat on their spouses, commit white collar crimes, lie about their own achievements, and commit academic fraud (Buss and Shackelford 1997;Menon and Sharland 2011;Blickle et al. 2006;Hales et al. 2012). ...
... Multiple empirical studies provide evidence that narcissists are more likely to engage in unethical actions. For example, Blickle et al. (2006) document a positive relation between narcissism and white collar crime, Buss and Shackelford (1997) find that narcissists are more susceptible to infidelity in their first year of marriage, Menon and Sharland (2011) find that narcissism is associated with greater academic cheating (wherein the effect is primarily driven by the exploitativeness component of narcissism), and Hales et al. (2012) find that narcissists are more likely to publicly exaggerate their performance on GMAT questions. ...
... Of the seven subscales, Exploitativeness (r = 0.40, p = 0.001) and, to a lesser extent, Authoritativeness (r = 0.26, p = 0.04), are most strongly correlated with both signature size and misreporting. This result is consistent with Hales et al. (2012) who found that the best fit for their model of performance reporting was obtained from replacing the general narcissism score with the score on the Emmons (1984) Entitlement/Exploitativeness subscale. ...
We investigate the effect of CFO narcissism, as measured by signature size, on financial reporting quality. Experimentally, we validate that narcissism predicts misreporting behavior, and that signature size predicts misreporting through its association with narcissism. Empirically, we examine notarized CFO signatures and find CFO narcissism is associated with more earnings management, less timely loss recognition, weaker internal control quality, and a higher probability of restatements. The results are consistent for within-firm comparisons focusing on CFO changes and are robust to controlling for CFO overconfidence and CEO narcissism. The results highlight the importance of CFO characteristics in the domain of financial reporting decisions.
... Penelitian menunjukkan seseorang dengan tipe kepribadian narsistik cenderung berperilaku tidak etis. Hales et al., (2012) menemukan hubungan yang positif antara manajer yang narsistik dengan pelaporan keuangan yang agresif. Johnson et al. (2021) menemukan auditor narsistik cenderung mengabaikan resiko audit apalagi bila direktur keuangan klien juga seorang narsistik. ...
... Sesuai dengan hipotesis yang diajukan, penelitian ini menemukan bahwa akuntan yang berkarakter narsistik cenderung bersikap mendukung praktik tidak etis. Hasil ini sejalan dengan studi yang dilakukan oleh Aprillia & Maharani (2021), Bailey (2019), Hales et al., (2012), dan Johnson et al. (2021). Demikian pula dengan akuntan yang berkarakter psikopatik, mereka cenderung bersikap mendukung praktik tidak etis. ...
Personality factors play an important role when a person is faced with a situation that involves moral judgment of right or wrong. A person with dark personality characteristics (dark triad) is very likely to exhibit unethical behavior. Ethical behavior is an important issue for the accountant profession because published financial statements must be accountable to the public, especially for investors and creditors as parties who bear great risks in making their investment and credit decisions. Although many studies have examined the factors causing the unethical behavior of accountants, studies investigating the impact of accountants' dark personalities on ethical decision-making are still scarce. This study aims to examine the effect of two types of dark personalities, namely narcissism and psychopathy, on accountant decision making involving various business ethical situations. The study employed a quantitative approach with primary data obtained from questionnaires. Narcissism is measured through Narcisstic Personality Inventory, psychopathy is measured through Levenson Self-Report Psychopaty Scale, and attitude toward unethical practices used an instrument use d by Bailey (2019). The population was management accountants, public accountants, and public sector accountants with a sample of 103 respondents. Multiple linear regression analysis was performed to test the research hypotheses using SPSS software version 26. The results showed that accountants with dominant narcissistic and psychopathic personalities tend to make unethical decisions.
... Recent studies in management, finance and accounting suggest that a high level of narcissism is related to unethical conduct (Amernic & Craig, 2010) and that CEO narcissism increases risk taking and has negative consequences for the organization (Ham et al., 2017;Ham et al., 2018;Johnson et al., 2013;Young et al., 2015). More specifically, CEO narcissism is associated with real earnings management (Ham et al., 2017;Olsen et al., 2014), meeting or beating analyst forecasts (Olsen et al., 2014), firm performance volatility (Chatterjee & Hambrick, 2007), merger and acquisition decisions (Aktas et al., 2016), corporate tax avoidance (Olsen & Stekelberg, 2015), overinvestment (Ham et al., 2018), financial misreporting and fraud (Hales et al., 2011;Rijsenbilt, 2011;Rijsenbilt & Commandeur, 2013;Schrand & Zechman, 2012). Narcissistic CEOs exhibit excessive risk taking (Campbell et al., 2004;Foster et al., 2009) and misreporting (Hales et al., 2011;Rijsenbilt, 2011;Rijsenbilt & Commandeur, 2013;Schrand & Zechman, 2012). ...
... More specifically, CEO narcissism is associated with real earnings management (Ham et al., 2017;Olsen et al., 2014), meeting or beating analyst forecasts (Olsen et al., 2014), firm performance volatility (Chatterjee & Hambrick, 2007), merger and acquisition decisions (Aktas et al., 2016), corporate tax avoidance (Olsen & Stekelberg, 2015), overinvestment (Ham et al., 2018), financial misreporting and fraud (Hales et al., 2011;Rijsenbilt, 2011;Rijsenbilt & Commandeur, 2013;Schrand & Zechman, 2012). Narcissistic CEOs exhibit excessive risk taking (Campbell et al., 2004;Foster et al., 2009) and misreporting (Hales et al., 2011;Rijsenbilt, 2011;Rijsenbilt & Commandeur, 2013;Schrand & Zechman, 2012). 5 ...
This paper examines the impact of two elements of the client's control environment on auditor's assessment of the risk of material misstatement: audit committee strength and CEO narcissism, the latter of which is a component of management philosophy, operating style, and tone at the top. We predict and find that auditors' risk assessments are adequately responsive to both elements; however, importantly, a strong audit committee decreases perceived risk assessments only when the client has a CEO with less narcissistic characteristics. In other words, our findings suggest that the presence of narcissistic CEOs' attitudes weakens the perceived audit committee effectiveness, leading auditors to rely less on a strong audit committee. Our findings contribute to the auditing literature by exploring auditors' responses to the complex dynamics between management boards and those charged with governance. From a practical perspective, our results suggest that auditing standards and practice guidance should consider making such complexities and the role of management attitudes and styles even more explicit.
... The typical personality traits in psychology are the Dark Triad traits, namely Machiavellian, narcissistic, and psychopathic. Narcissistic traits studies have been extended to corporate risk research (Chatterjee & Hambrick, 2007) and earnings management studies (Duchon & Drake, 2009;Hales, Hobson, & Resutek, 2012). Research outcomes of these previous studies suggested that higher levels of narcissism in CEOs and CFOs might result in higher earnings management. ...
... The study found that narcissistic CEOs are more likely to explore real earnings management rather than accrual-based earning management to increase reported earnings per share. Hales et al. (2012) examined the relationship between narcissistic trait and managerial reporting and revealed that narcissism induced participants to inflate reported performance. Ham, Lang, Seybert, and Wang (2014) utilize the size of CFO and CEO signatures as a proxy for narcissism to determine the influence of the executive's personality on financial reporting outcomes. ...
Earnings management offers an opportunity to hide frauds, which are often associated with key officials of corporate entities. Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) have been implicated in fraudulent earnings management. This study aims to investigate the effect of CFOs’ personality traits on earnings management in non-listed companies facing a debt crisis in Nigeria. The study explores a survey research method involving the administration of copies of a structured questionnaire on CFOs of the sampled companies. Statistical analysis includes computation of means, linear and multiple regression analyses. The findings reveal a high level of upward corporate earnings management and a strong exhibition of narcissistic trait among the CFOs. It was further observed that CFOs’ narcissistic trait is implicated in upward earnings management during the financial crisis. Possible economic implications of these outcomes include misallocation of resources by investors and aggravation of corporate debt crisis. These outcomes have policy implications on the appointment of corporate key officials and the accounting education curriculum. Consequently, the study recommends the personality trait test for individuals to be appointed into upper echelons’ positions in corporate organizations, as well as the inclusion of Element of Psychology in the curriculum of accounting education in Nigeria. AcknowledgmentOur sincere gratitude goes to Covenant University, Ota, Ogun State, Nigeria, for sponsoring the publication of this research paper as a contribution to the body of existing knowledge in corporate financial reporting in Nigeria.
... Manager narcissism has been examined in relatively few accounting studies. In an experimental economics context, Hales et al. (2011) found a positive association between manager narcissism and aggressive financial reporting. Aktas et al. (2012) examined CEO narcissism effects in merger and acquisition activity and found less favorable shareholder reaction to takeover announcements and lower probability of deal completion when the acquiring and/or target organization CEOs were more narcissistic. ...
... We based our narcissism manipulation on an analysis of selected items from the Narcissistic Personality Inventory (NPI) by Raskin and Hall (1979). The NPI is the most commonly used scale to measure narcissism in business research (Hales et al. 2011). We focused on NPI items that best matched up with the narcissism constructs of grandiosity and entitlement/exploitativeness. ...
Auditing standards prescribe that the auditor should consider client management's attitude toward fraud when making fraud risk assessments. However, little guidance is provided in the auditing standards or the existing fraud literature on observable indicators of fraud attitude. We test whether observable indicators of narcissism, a personality trait linked to unethical and fraudulent behavior, is viewed by auditors as an indicator of increased fraud attitude risk. We administered an experiment to 101 practicing auditors from one international public accounting firm who assessed fraud risk based on a scenario in which client manager narcissism (attitude) and fraud motivation were each manipulated at two levels (low and high). Our results show that narcissistic client behavior and fraud motivation are significantly and positively related to auditors' overall fraud risk assessments. Implications of these findings for further research and the auditing profession are discussed.
Data Availability: Contact the authors.
... The CEO narcissism is more concerned with the financial performance than any other activity (Ahn and Lee 2019). Indeed, CEOs with higher narcissistic trends tend to care about the financial performance more SN Bus Econ (2024) 4:117 117 Page 20 of 27 than any other activity (Anderson and Tirrell 2004;Resick et al. 2009;Amernic and Craig 2010;Hales et al. 2012;Rijsenbilt and Commandeur 2013;Patel and Cooper 2014;Olsen et al. 2016;Ahn and Lee 2019). In fact, financial figures are an ideal mechanism for narcissistic CEOs to satisfy their intense need to have their superiority continually reaffirmed (Rijsenbilt and Commandeur 2013). ...
This present research aims to highlight how the CEO behavioral biases affect the CSR and its dimensions. It also delves into determining the CSR dimensions having different moderating effects on the relationship between the CEO behavioral biases and overall CSR. This research measures the Corporate Social Responsibility (CSR) of 362 European firms listed on the STOXX 600 index, observed over the period ranging from 2018 to 2022 using the Thomson Reuters-ASSET4, while financial information has been gathered from the Datastream database and behavioral biais of Chief Executive Officer’s(CEO), they have been collected manually by reviewing the Bloomberg website. This study estimates panel regressions to validate the relationship between the CEO overconfidence and narcissism in various activities of Corporate Social Responsibility. The results show that psychological biases, in particular narcissism and overconfidence of the CEO, have a positive and significant effect on the CSR at the level of the product and employee dimensions. Moreover, we give proof of a positive and significant moderating impact of both CSR components, namely environment and governance, on the relationship between the overconfidence and overall CSR. Furthermore, we come to the inference that the community, product and employee positively and significantly moderate the relationship between the CEO narcissism and overall CSR. The present research contributes to the literature through investigating the multidimensional CSR, and via highlighting the relationship between CEO behavior on CSR and its dimensions.
... Word laser-focused shows the narcissistic side of the CEO. A higher narcissism level leads to earnings management engagement for performance evaluation so the CEO can fulfill the interest in a positive image, compliments, enthusiasm and public support (Hales et al., 2016). ...
Purpose
This research paper aims to examine the effect of chief executive officer (CEO) characteristics on earnings management.
Design/methodology/approach
Research samples are manufacturing firms listed in the Indonesian Stock Exchange 2015–2021. CEO characteristics include narcissism, gender, age, tenure, experience, nationality and founding family status. Data analysis uses random-effect regression.
Findings
The result shows that higher narcissism CEOs have aggressive characteristics so they will be more likely to engage in accrual and real earnings management. Female CEOs, foreign CEOs and founding-family CEOs have higher monitoring and business ethics characteristics so they will be less likely to engage in accrual and real earnings management. CEOs with higher education levels have higher thinking complexity so they will be more likely to engage in accrual earnings management with higher regulator and auditor monitoring barriers than real earnings management. CEOs with financial and accounting experience are familiar with accounting standards and auditor monitoring barriers so they will be more likely to engage in accrual earnings management than real earnings management. On the other hand, there are no effects of CEO age and tenure on earnings management.
Originality/value
This research contributes to providing evidence of the effect of CEO characteristics on earnings management in a specific industry such as manufacturing firms and emerging markets such as Indonesia with the majority group firms being family firms.
... In addition, managing items of commitment is used more than managing actual profit. Hales et al. (2012) conducted a laboratory study to investigate whether the narcissism of managers affects the way the company's financial performance is reported. According to their findings, when reporting favorable company performance is very important, narcissism can cause individuals to report higher performance than actual, especially when the individual is looking to be the first and top performer compared to others, meaning they are selfish. ...
... The paper thus develops its conceptual framework (Figure 1) based on the assumption that narcissistic CEOs use narrative disclosures about their firm's performance to enhance their own self-image and self-esteem Judd et al., 2017). They do so by inflating the tone of their writing (Hales et al., 2012) to influence perceptions of the firm's achievements. Narcissistic tendency is one of the essential concepts explaining CEOs' behaviour patterns (Zhu and Chen, 2015). ...
Purpose
The purpose of this paper is to examine how chief executive officers’ (CEOs) narcissism impacts firm performance and how this, in turn, affects a CEO’s positive rhetorical tone.
Design/methodology/approach
The narcissism score is measured by using an analytical composite score for each CEO based on eight factors. The paper uses textual analysis on a sample of 848 CEO letters of US firms over the period 2010–2019. WarpPLS software, version 7.0 was used to conduct structural equation modeling through the partial least squares because a non-linear algorithm exists between CEO narcissism, firm performance and positive tone, and the values of path coefficients moved from non-significant to significant.
Findings
The results suggest that performance partially mediates the relationship between CEO narcissism and positive tone. This indicates that not all the positivity expressed by narcissistic CEOs is opportunism; some of it is indeed driven by better performance. The reported findings indicate that firm performance explains one-quarter of a CEO’s positive words, whereas some three-quarters of the positivity is driven by a narcissistic CEO (i.e. opportunism). A comparison of letters signed by highly narcissistic and less narcissistic leaders reveals that among those letters signed by highly narcissistic leaders, firm performance plays a significant mediating role between narcissistic tendencies and positive tone. However, among those with less narcissistic score, there is no evidence that performance mediates the tone and narcissism. Interestingly, both highly narcissistic and less narcissistic CEOs use positive words and optimistic expressions even when their firms perform poorly or negatively.
Research limitations/implications
The results help shareholders be aware that CEOs may opportunistically use their personal characteristics and language to manipulate them. Data limitations about women CEOs were one of the reasons behind the small proportion of women CEOs in this study, making it low in generalizability.
Originality value
A comprehensive review showed that none of previous studies examined the more ambiguous relationship between a CEO’s narcissist tendency, the firm’s performance, and CEO rhetorical tone. As one set of studies focused on Narcissism → Performance, and the other one on Performance → Tone, this current study completes the picture with Narcissism → Performance → Tone.
... Several academics study how narcissism is associated with earnings management, measured by abnormal discretionary accruals, discretionary expenses, abnormal production costs and abnormal operational cash flows (Frino et al., 2015;Ham et al., 2017), less timely loss Executives' narcissism and decision making recognition (as in the timeliness of good versus bad news); high probability of restatements and ineffective or weak internal control (Ham et al., 2017). Other researchers on the same note studied narcissism effect on a firm and found that it could be via; high earning management, higher probability of misstatement, weaker internal controls, resistance to board strategies and sometimes higher compensation schemes (Hales et al., 2012;Zhu and Chen, 2015;O'Reilly et al., 2014). Capalbo et al. (2018) find that narcissistic CEOs overidentify themselves and are more likely to exert efforts to reach their goal even if it means to adopt unethical policies. ...
Purpose
This paper aims to provide a systematic review of literature pertaining to how executive behavioral characteristics relate to financial reporting decisions.
Design/methodology/approach
The authors review 44 papers published between 2001 and 2021 in top journals that are nested in leading business, economic and accounting journals.
Findings
Through the systematic review, the authors provide a framework for the emergence of narcissism and how it relates to decision making and hence, firm performance. Additionally, this paper identifies different measures of measuring narcissism with their pros and cons and suggest that different measures lead to different outcomes in prior literature.
Originality/value
The study contributes to a growing stream of research on executives' attributes influence on decision making. The authors recommend that future research may focus more on the chief financial officer (CFO) role as the majority of literature in CEO based. Additionally, the authors suggest that different settings may moderate the outcomes, and the authors propose that future research may be conducted to show how the regulatory environment affects or moderates narcissism effect.
... They argue that it may result from narcist CEOs' attempts to get public attention and protect the social image. Moreover, Hales et al. (2012) find that a higher social image is an essential factor influencing why narcissism is related to the manipulation of public reports. Hence, there is a possibility that narcist CEO may manipulate public reports quantitively and qualitatively to achieve their personal goals. ...
CEO Narcissism has the potency to influence individual characteristics positively or negatively. We aim to examine the relationship between narcissism as CEO-level characteristics and tax footnotes readability. We measure narcissism using the CEOs’ photos on the firms’ annual reports. Using 799 firm-year Indonesia listed firms from 2015 through 2019, we find that higher CEO narcissism is related to a higher tax footnote readability. This result is robust for alternative measures of readability. By examining the relationship between CEO narcissism and tax footnotes readability, we provide an additional important factor to boards for consideration during the CEO selection. We also offer insight for shareholders or investors to consider CEO traits, namely narcissism, in assessing and interpreting tax footnotes readability.
... In an experimental study, Hales, Hobson and Resutek [40], found that assurance of a higher social status is one the most critical motivations associated with a narcissistic individual to manipulate public reports.Accounting irregularities are generally associated with a deliberate manipulation of accounting numbers. Essentially, accounting irregularities are actions used to cover financial statements' negativity to present a better portrayal of companies. ...
... These findings are typically psychological and show that narcissistic managers are more likely to participate in stressful moral activities. For example, high-level managerial narcissism would result in tax evasion, manipulation of accounting data, paying compensation, and excessive crimes, fraud and fraudulence (Olsen and Stekelberg, 2015;Ahmed and Duellman, 2013;Judd et al., 2017;Capalbo et al., 2018;Hales et al., 2012;Ham et al., 2017;Hsieh et al., 2014;O'Reilly et al., 2014;Rijsenbilt and Commandeur, 2013;Scherned and Zechman, 2012). Such activities can take place with great dexterity but endanger business firms (Duchon and Dark, 2008;Verschoor, 1988). ...
Purpose
This study aims to concern about the relationship between management managerial attributes (management entrenchment, narcissism and overconfidence of the chief executive officer, board effort and real and accrual earnings management) and comparability of financial statements listed firms on the Tehran Stock Exchange. In other words, this paper aims to answer the question that “whether managerial attributes contribute significantly to the comparability of financial statements or not”.
Design/methodology/approach
The multivariate regression model is used for hypothesis testing. The hypotheses were examined using a sample of 768 listed observations on the Tehran Stock Exchange during 2012–2017 and by using from the multivariate regression pattern based on panel data techniques and the random-effects model.
Findings
The obtained results show a significant and negative relationship between management entrenchment, real and accrual earnings management, comparability and the relationship between management narcissism, overconfidence and board effort and comparability of financial statements is positive and significant.
Originality/value
As the present study is the pioneer study on such topics in the emerging markets, it provides valuable information concerning the intrinsic and acquired features of the management for users, analysts and legal institutions with a considerable impact on the comparability of financial statements. Moreover, this study’s results contribute significantly to the development of science and knowledge in this field and fill the gap in the literature.
... In the accounting field the study on narcissistic behaviour were focusing on the narcissism among accounting managers such as accounting executives and chief executive officer with an accounting background the impact of the behaviour on firm performance and financial reporting disclosure (Dworkis, 2013;Hales et al. 2012). Meanwhile there is a little study that focus on accounting student and their narcissistic personality especially in Malaysia. ...
... This view is supported by various scholars. Individuals with higher narcissistic tendencies care more about financial performance than any other activity (Patel and Cooper, 2014;Olsen et al., 2013;Rijsenbilt and Commandeur, 2013;Anderson and Tirrell, 2004;Amernic and Craig, 2010;Hales et al., 2012;Resick et al., 2009). This is cecause financial figures are "ideal mechanism for narcissistic CEOs to satisfy their intense need to have their superiority continually re-affirmed" (Rijsenbilt and Commandeur, 2013, p. 414). ...
During recent years, there has been a growing interest in CEO narcissism across disciplines. Various scholars document that CEO narcissism is an important factor that should not be overlooked when analyzing various organizational outcomes and strategies. Research on CEO narcissism has focused on its negative implications on organization outcomes. However, little attention has been paid to its effect on corporate social responsibility (CSR). This study explores the relationship between CEO narcissism and two distinct facets of CSR (stakeholder management and social issue participation), while taking into account the moderating role of outside board of directors. Using a sample of publicly traded U.S restaurants, the results document that an outside board of directors plays a moderating role on the relationship between CEO narcissism and the two distinct facets of CSR.
... In the accounting field, studies on the theme mainly concentrate on the presence of narcissism among managers and the consequent influence on bookkeeping decisions and disclosure of management reports (Hales, Hobson & Resutek, 2012;Dworkis, 2012), and other aspects have been little explored. This represents an incomplete treatment of the theme, since as Menon and Sharland (2011, p. 51) note, the characteristics inherent to narcissists, such as exaggerated positive opinions regarding their status, dominance, and intelligence, as well as a constant desire for power, "can cause problems in other aspects of an individual's life, including in their academic experience". ...
The purpose of this research was to identify if non-pathological narcissistic personality traits in accounting students are related to their performance. Students who overestimate their performance, a characteristic present in narcissistic individuals, live in the unrealistic belief that they do better than others in different activities. Such tendency can be detrimental in the long term. In addition to resulting in a constant effort so that such expectations become reality. The data were collected from a sample of 106 Brazilian accounting students who responded to a survey that included the Narcissistic Personality Inventory (NPI). The results suggest that the higher the presence of narcissistic traits, the greater his/her self-perceived academic performance. At same time, narcissism does not influence the student's real performance, which suggest that narcissistic personality traits just influence expectations, reather than the learning process.
... An emerging line of experimental research (e.g., Brown, Rennekamp, Seybert, and Zhu 2014;Hales, Hobson, and Resutek 2012;Majors 2016) shows that personality traits such as narcissism, Machiavellianism, and psychopathy have significant effects on an individual's decision whether to report honestly, providing complementary evidence for the issue examined here. The psychometric measures used in these experimental studies are likely to be correlated with some of the demographic variables used in our study. ...
SYNOPSIS
Using a sample of Chinese A-share listed firms from 2000 to 2015, we investigate the association between a firm's use of earnings management strategies and the characteristics of its top management team. Our findings suggest that several demographic characteristics (i.e., age, gender, educational level, and financial work experience) of the entire team, as well as of the CEO/CFO and other team members separately, are significantly associated with both accrual-based and real-activities-based earnings management; these, in turn, may affect the quality of the firm's financial reporting. Our results are consistent with the predictions of the upper echelons theory and have implications for various stakeholders in corporate financial reporting, as well as providing insights to those responsible for selecting and developing upper-level executives.
JEL Classifications: M40; M41.
Data Availability: The data used in this paper are derived from public sources.
... These studies have shown that narcissistic CEOs are more likely to manipulate corporate earnings (Buchholz, Lopatta, & Maas, 2014;Frino et al., 2015;Hsieh et al., 2014), restate financial reports (Ham et al., 2017), aggressively avoid paying taxes , and produce lower financial reports with lower accounting quality (Judd et al., 2015). These studies build on a growing body of work showing that overconfident or narcissistic CEOs are more likely to lead firms that misreport their financial status (Ahmed & Duellman, 2013;Amernic & Craig, 2010;Boyle, Carpenter, & Hermanson, 2012;Hales et al., 2012;Laux & Stocken, 2012;Schrand & Zechman, 2012) and be at risk of committing fraud (Boyle et al., 2012;Duchon & Drake, 2008;Peng & Roell, 2008;Rijsenbilt & Commandeur, 2013). ...
Although some researchers have suggested that narcissistic CEOs may have a positive influence on organizational performance (e.g., Maccoby, 2007; Patel & Cooper, 2014), a growing body of evidence suggests that organizations led by narcissistic CEOs experience considerable downsides, including evidence of increased risk taking, overpaying for acquisitions, manipulating accounting data, and even fraud. In the current study we show that narcissistic CEO's subject their organizations to undue legal risk because they are overconfident about their ability to win and less sensitive to the costs to their organizations of such litigation. Using a sample of 32 firms, we find that those led by narcissistic CEOs are more likely to be involved in litigation and that these lawsuits are more protracted. In two follow-up experimental studies, we examine the mechanism underlying the relationship between narcissism and lawsuits and find that narcissists are less sensitive to objective assessments of risk when making decisions about whether to settle a lawsuit and less willing to take advice from experts. We discuss the implications of our research for advancing theories of narcissism and CEO influence on organizational performance.
... Narcissism being considered one of the aspects of personalities of managers has been researched and studies like that of Chatterjee and Hambrick (2007) have indicated that narcissist managers tend to take risky asset investment decisions, which many times is not good for organizations. One more managerial dysfunction of narcissism is narcissist managers have tendency to present selfenhancing reports of performance (Hales, Hobson, & Resutek, 2012). If one is self enhancing, then he downsizes the good performances of others which leads to them being dissatisfied with jobs and this situation is not good for normal functioning of any organization. ...
The constructs of narcissism and job satisfaction as personality type and work attitude respectively are studied among the bank employees of Delhi NCR in this paper. Both these concepts are important for practicing managers and researchers as they influence not only the individual employees working in various business entities but also organizations as a whole. The study seek to find the levels of narcissism and job satisfaction on the basis of selected demographic variables, to explore the association between narcissism and job satisfaction, explore factors contributing to job satisfaction and their relationship with overall job satisfaction and their preferred choice among employees. The research being non-experimental, descriptive and quantitative in design, 128 private bank employees in Delhi NCR area were taken as sample size through stratified random sampling. The statistical tools used to analyze data collected through a questionnaire were Cronbach's Alpha, Pearson correlations (bivariate), regression analysis and chi square test along with means, standard deviation and percentages. Many key findings on various demographic variables and their association with narcissism and job satisfaction emerged from the study. Also the relationship between narcissism and job satisfaction was established as the result of the analysis. The findings of the study also guide the practicing managers and researchers to apply the concept of narcissism and job satisfaction in a novel manner for the overall good of the organization.
... Past research has shown that narcissism is positively related to the need to be superior to others, dominance concerns, and sensitivity regarding social esteem and status (Brown & Zeigler-Hill, 2004;Emmons, 1987;Hales, Hobson, & Resutek, 2012;Raskin & Terry, 1988). The present research documents that these associations also hold true when the endocrinological factors that are related to specific psychological tendencies are taken into account (T to dominance, C to threats to social standing and status; Dickerson & Kemeny, 2004;Knight & Mehta, 2014). ...
This research investigates endocrinological associations of the Dark Triad by relating narcissism, Machiavellianism and psychopathy to endogenous testosterone and cortisol. Building on the notion that narcissists (in contrast to individuals with a proneness to Machiavellianism or psychopathy) possess a preference for being superior and a propensity to dominate other individuals, it is assumed that the dominance-related hormone testosterone is positively associated with narcissism. It is additionally assumed that narcissism specifically is positively related to basal cortisol levels given narcissists' vigilance and sensitivity regarding their social esteem and status which is linked to cortisol activity. In a study including 129 men from the subclinical population (Mage = 21.97, range = 18 to 34 years), a positive correlation of narcissism with basal testosterone levels was found. Narcissism was also positively correlated with basal cortisol levels. No significant relations emerged for Machiavellianism or psychopathy. In sum, the present contribution suggests that dark personality traits, in this case narcissism, are expressed in the endocrinology of individuals.
... While the Big Five framework has been neglected in accounting research, recent attention to another set of personality factors adds credence to the notion that personality differences do, indeed explain important aspects of behavior that are not attributable to the situation or environment. These are the Dark Triad of Machiavellianism, narcissism, and psychopathy (e.g., Hales, Hobson, & Resutek, 2012;Johnson, Huhn, Apostolou, & Hassell, 2013;Murphy, 2012). ...
From an online survey of 114 participating accountants at staff, senior-staff, and supervisor levels from a top-100 U.S. accounting firm, we investigate the effects of the Big Five personality traits (Conscientiousness, Agreeableness, Extraversion, Neuroticism, and Openness) on the ethical decision-making process of accountants. Within the framework of Rest’s (1986) Four-Component Model of Ethical Behavior, we focus on Component III, the formation of an intention to act upon one’s best ethical judgment. Based on the limited extant literature on the connection between personality and ethical behavior, we expect that accountants high in Conscientiousness and Openness will tend to form an intention to act ethically despite pressure in an ethical dilemma. We develop more tentative hypotheses about the remaining three factors. Controlling for age, gender, education, sole earning status, and experience, we find clear positive statistical effects of only Conscientiousness and Openness. These findings have implications for the human resource departments of accounting firms, as well as contributing to a basic understanding of the relationships between Big Five personality factors and ethical intention.
... High levels of trait narcissism are related to unethical behavior (Brown et al. 2009;Brunell et al. 2011), as well as to low levels of personal integrity (Schlenker 2008). Accounting research finds positive associations between manager narcissism and aggressive financial reporting (Hales et al. 2011). Rijsenbilt (2011) found a significant association between reported fraud in the SEC Audit and Accounting Releases and CEO narcissism. ...
The rash of high-profile accounting frauds involving internal corporate accountants calls into question the individual accountant’s perceptions of the ethical climate within their organization and the limits to which these professionals will tolerate unethical behavior and/or accept it as the norm. This study uses social cognitive theory to examine the antecedents of individual corporate accountant’s perceived personal fit with their organization’s ethical climate and empirically tests how these factors impact organizational attitudes. A survey was completed by 203 corporate accountants to assess their perception of relevant variables. The results of the structural equation model indicate three significant antecedents relating to ethical climate fit: higher internal levels of locus of control; greater numbers of prior job changes; and higher perceptions of an increasingly better fit with the firm’s ethical climate (e.g., fit trend). Our results also indicate that higher levels of perceived fit to the ethical climate of a firm are associated with higher levels of perceived job satisfaction and organizational commitment. We also theorize that perceptions of an organization’s ethical climate may be reflections of client narcissism and serve a potential indicator of fraud risk. This is an important topic of study, since current auditing standards call for auditors to examine organizational attitudes toward fraud, but offer minimal guidance in doing so.
... By social status, we mean the socially recognized position a person maintains in a hierarchy that is considered desirable and, therefore, that confers privilege and entitlement (Hales, Hobson, & Resutek, 2012;Huberman, Loch, & Önçüler, 2004). Social status can engender power because it is linked to resources, either symbolic or tangible, and often both. ...
Individuals with lower social status have been reported to express more anger, but this evidence comes mostly from Western cultures. Here, we used representative samples of American and Japanese adults and tested the hypothesis that the association between social status and anger expression depends on whether anger serves primarily to vent frustration, as in the United States, or to display authority, as in Japan. Consistent with the assumption that lower social standing is associated with greater frustration stemming from life adversities and blocked goals, Americans with lower social status expressed more anger, with the relationship mediated by the extent of frustration. In contrast, consistent with the assumption that higher social standing affords a privilege to display anger, Japanese with higher social status expressed more anger, with the relationship mediated by decision-making authority. As expected, anger expression was predicted by subjective social status among Americans and by objective social status among Japanese. Implications for the dynamic construction of anger and anger expression are discussed. (PsycINFO Database Record (c) 2013 APA, all rights reserved).
دستکاری گزارش های مالی متأثر از عوامل رفتاری و غیر رفتاری است یکی از عوامل رفتاری، ویژگی های شخصیتی ماکیاولیسم و خود شیفتگی است. در علم روانشناسی، این دو رفتار را ویژگی های تاریک شخصیتی می نامند که می تواند درستکاری و رفتار مطلوب افراد را تحت تأثیر قرار دهد. بر همین اساس این تحقیق به دنبال بررسی تاثیر ویژگی های شخصیتی مدیران بر تمایل به دستکاری گزارش های مالی می باشد. در این تحقیق تعداد 118 شرکت پذیرفته شده در بورس اوراق بهادار تهران در دوره زمانی 1399-1398 بررسی شده است. جهت آزمون فرضیه ها از مدل های رگرسیون پولد استفاده شده، نتایج تحقیق حاکی از این است که ویژگی های شخصیتی ماکیاوالیسم و خود شیفتگی مدیران بر تمایل به دستکاری گزارش های مالی تاثیر مثبت و معناداری دارد.
دستکاری گزارش های مالی متأثر از عوامل رفتاری و غیر رفتاری است یکی از عوامل رفتاری، ویژگی های شخصیتی ماکیاولیسم و خود شیفتگی است. در علم روانشناسی، این دو رفتار را ویژگیهای تاریک شخصیتی مینامند که میتواند درستکاری و رفتار مطلوب افراد را تحت تأثیر قرار دهد. بر همین اساس این تحقیق به دنبال بررسی تاثیر ویژگیهای شخصیتی مدیران بر تمایل به دستکاری گزارش های مالی میباشد. در این تحقیق تعداد 118 شرکت پذیرفته شده در بورس اوراق بهادار تهران در دوره زمانی 1399-1398 بررسی شده است. جهت آزمون فرضیهها از مدلهای رگرسیون پولد استفاده شده، نتایج تحقیق حاکی از این است که ویژگیهای شخصیتی ماکیاوالیسم و خود شیفتگی مدیران بر تمایل به دستکاری گزارشهای مالی تاثیر مثبت و معناداری دارد.
Ethical decision making is decision making that considers moral values and ethical principles. Several indicators that will be tested empirically in ethical decision making are gender, Machiavellianism, narcissism and empathy in ethical decision making of accounting students in Padang City. The population of this study were Bachelor of Accounting students in Padang City. The sample in this study was 200 Bachelor of Accounting students with random sample selection. The hypothesis was tested using multiple linear regression. The results of this research show that the variables gender and empathy have a positive influence on ethical decision making, and the variables Machiavellianism and narcissism have a negative influence on ethical decision making. The contribution of this research can provide insight into how gender differences can influence the way individuals process information morally, understanding how manipulative tendencies can influence decision making when individuals face conflicts between personal interests and moral norms. Narism can help explain how narcissistic attitudes and behavior can influence an individual's ability to make ethical decisions and have empathy in various contexts and social contexts. Abstrak Pengambilan keputusan etis adalah pengambilan keputusan yang mempertimbangkan nilai-nilai moral dan prinsip-prinsip etika. Beberapa indikator yang akan diuji secara empiris dalam pengambilan keputusan etis adalah jenis kelamin, Machiavellianism, narsisme, dan empati dalam pengambilan keputusan etis mahasiswa akuntansi di Kota Padang. Populasi studi ini adalah mahasiswa S1 Akuntansi di Kota Padang. Sampel dalam penelitian ini adalah 200 mahasiswa S1 Akuntansi dengan pemilihan sampel acak. Hipotesis diuji menggunakan regresi linear berganda.Hasil penelitian ini menunjukkan bahwa variabel jenis kelamin dan empati memiliki pengaruh positif terhadap pengambilan keputusan etis, dan variabel Machiavellianism dan narsisme memiliki pengaruh negatif terhadap pengambilan keputusan etis. Kontribusi dari penelitian ini dapat memberikan wawasan tentang bagaimana perbedaan jenis kelamin dapat mempengaruhi cara individu memproses informasi secara moral, memahami bagaimana kecenderungan manipulatif dapat mempengaruhi pengambilan keputusan ketika individu menghadapi konflik antara kepentingan pribadi dan norma moral. Narsisme dapat membantu menjelaskan bagaimana sikap dan perilaku narsistik dapat mempengaruhi kemampuan individu untuk membuat keputusan etis dan memiliki empati dalam berbagai konteks dan situasi sosial.
We investigate whether and how perceived observability of two types of information to peers – effort and performance – affects an agent’s engagement in performance measure manipulation. We propose that the relation between performance observability to peers and manipulation of performance measures depends on effort observability to peers. Data from two field surveys of mid- and lower-level managers in the United Kingdom support our prediction. The results show that the lower effort observability to peers is, the more performance observability to peers heightens performance measure manipulation; and that the higher the performance observability to peers is, the more effort observability to peers lowers performance measure manipulation. Our results thus suggest that performance observability and effort observability to peers are complementary. Our findings have important implications for literature on the design of management control systems and peer monitoring. Moreover, they help firms make better use of transparency to minimize the manipulation of performance measures.
This paper examines the effects of CFO narcissism on audit fees in China. Using the size of CFO signatures in annual audit reports to measure individual narcissism, we find that CFO narcissism is associated with higher audit fees. We find empirical evidence that CFO narcissism significantly increases the audit fees of listed companies, and this effect is stronger in state-owned enterprises. This paper also explores the mediating effects of financial information and the engagement of prestigious Big-4 and Big-10 firms. The results show that companies with narcissistic CFOs have lower quality financial information and prefer more prestigious firms, which leads to higher audit fees. This research highlights the importance of CFO narcissism in corporate performance and provides new evidence that will be useful for listed companies that plan to hire senior executives.
We examine two features of control environments expected to affect the honesty of budget submissions by subordinates and their use by managers for planning purposes. First, we predict that subordinates' awareness of incentives available to their managers that they are not eligible to share in, is likely to induce inequity aversion and dishonest budgeting. However, we expect the egocentric bias will make managers insensitive to this increased dishonesty when using budgets for planning purposes. Second, we predict that making subordinates eligible to participate in incentives available to their managers will activate a personal norm of other-regarding behavior resulting in more honest budgeting. Third, we predict that managers whose subordinates are eligible to share in their incentives will recognize factors motivating their subordinates' behavior and, as a result, rely more on their budget submissions for planning purposes. Experimental results confirm all predictions. Implications for practice and research are discussed.
We investigate the effect of CFO narcissism, as measured by signature size, on financial reporting quality. Experimentally, we validate that narcissism predicts misreporting behavior, and that signature size predicts misreporting through its association with narcissism. Empirically, we examine notarized CFO signatures and find CFO narcissism is associated with more earnings management, less timely loss recognition, weaker internal control quality, and a higher probability of restatements. The results are consistent for within-firm comparisons focusing on CFO changes and are robust to controlling for CFO overconfidence and CEO narcissism. The results highlight the importance of CFO characteristics in the domain of financial reporting decisions. This article is protected by copyright. All rights reserved
I use a laboratory experiment to examine the productive and counterproductive effects of providing employees nonpecuniary recognition based on measures of relative performance. I find that, on average, recognition programs increase both productive efforts (those intended to increase one's own performance) and counterproductive efforts (those intended to decrease peer performance) in a setting where it is salient to employees that they can exert both productive and counterproductive efforts. Interestingly, I also find that these effects are moderated by the Dark Triad of personalities, a group of three personality traits. My study reveals that recognition programs mainly lead individuals who score lower on the Dark Triad to increase counterproductive efforts and those who score higher on the Dark Triad to increase productive efforts. These results contribute to the literature on relative performance information by demonstrating that recognition programs can have both productive and counterproductive effects. However, whether these programs produce mainly a productive or counterproductive effect depends on important personality characteristics of the employees.
I conduct an interactive experiment with participants in manager and investor-like roles to examine whether and how mandating range disclosures for uncertain estimates will influence managers' reporting decisions. I find that managers report less aggressively when ranges are disclosed, such that investors have little aggressive reporting to identify using range disclosures. However, consistent with psychology theory, range disclosures have the greatest effect on managers with stronger levels of psychopathy, narcissism, or Machiavellianism ("the Dark Triad" of personality in psychology). Range disclosures discipline these managers' aggressive reporting, while managers with lower levels of all of these personalities have less aggressiveness to discipline and are insensitive to range disclosure. Consequently, mandating range disclosures should have the greatest effect on managers most in need of reining in - and is unlikely to reveal aggressive reporting to investors (as might be expected), because these managers reduce aggressiveness in anticipation of investor actions.
We conduct an experiment to investigate the effect of rankings, which are pervasive in practice, on the honesty of managers’ budget reports, which is important for sound decision making in organizations. Participants in our experiment are ranked in one of four ways: (1) firm profit, (2) own compensation, (3) both firm profit and own compensation, and (4) randomly, which serves as our baseline condition. None of the rankings affect participants’ remuneration. Compared to our baseline (random rankings) setting, where participants indeed exhibit honesty concerns, we find that rankings based on firm profit significantly increase honesty and that rankings based on own compensation significantly decrease honesty. Participants who received both rankings were significantly more honest than participants in the own compensation rankings condition. We did not, however, find significant differences in honesty between the both rankings and firm profit rankings conditions. As such, participants in the both rankings condition seemed to focus more on the firm profit metric than on the financially congruent own compensation metric. We also find that our results are stable across periods, suggesting that the effects of rankings neither increased nor dissipated over time. We discuss the contributions of our study and concomitant findings to accounting research and practice.
Prior research argues that sequential decisions lead to a slippery slope toward wrongdoing, with little evidence to support such claims. We conduct two experiments which demonstrate the existence of the slippery slope in a controlled setting, and investigate whether it leads “good people” to do “bad things.” Our first experiment manipulates whether the potential for wrongdoing sequentially increases or decreases. We find that low-Machiavellians commit larger cumulative wrongdoing when the opportunities are increasing in magnitude, consistent with slippery slope behavior. High-Machiavellians are less susceptible to slippery slope behavior. Our second experiment replicates these results for a more unethical decision, and shows that low-Machiavellian participants who engage in slippery slope behavior undergo a change in beliefs about the appropriateness of engaging in wrongdoing. Our study confirms the slippery slope toward misconduct, suggests that cognitive dissonance is likely to play a role in the phenomenon, and highlights differences in susceptibility across individuals.
While the striving for status has long been recognized in animals and in humans, the role of status in their utility calculations has not been clarified. Specifically, the debate has not been settled whether people pursue status as a means to achieve power and resources or as an (emotional) goal in itself. We present results of a rent seeking experiment with human subjects from four different national cultures. Our results show that people regard status as a valued resource in itself, rather than a means to an end. Participants in the experiment played a two-stage game in which they tried to win a risky all-or-none rent. An analysis of the data established that the subjects valued status independently of any monetary consequence and were willing to trade-off some material gain in order to obtain it. This result was stable across the four cultures from Hong Kong, Turkey, the US, and Germany. Moreover, the amount of money that participants were willing to trade off against status corresponded to the Hofstede's power distance index of the respective culture. The power distance index of a culture has been shown to be correlated with the importance and acceptance of status symbols in that culture. Finally, the amount of status seeking observed was different among men and women, an intriguing observation that deserves further work.
We use two experiments to test predictions about the positive and negative impacts of allowing analysts to revise their forecasts in light of the consensus forecasts. We find that such mutual observation not only facilitates information aggregation, but also induces free riding, which offsets the benefits of information aggregation unless incentives for accuracy are high. In our second experiment, we find that participants acting as investors anticipate these effects in the consensus and adjust their own forecasts accordingly. Our study demonstrates that the positive and negative effects of mutual observation are more complex than typically portrayed in the debate about analyst independence, and provides a framework that can be used in future research on the interactive nature of public forecasting.
Because the results of a regression analysis can be sensitive to outliers (either on
y or in the space of the predictors), it is important to be able to detect such points. The author discusses and interrelates the following 4 diagnostics that are useful in identifying outliers: studentized residuals, the hat elements, Cook's distance, and Mahalanobis distance. Guidelines are given for interpretation of the diagnostics. Outliers will not necessarily be influential in affecting the regression coefficients. (27 ref) (PsycINFO Database Record (c) 2012 APA, all rights reserved)
This review identifies subjective decision-making processes related to management accounting (MA) and uses these processes as a basis for organizing psychology-based research on MA. For each decision process we identify families of related psychology models that have supported robust theory-consistent empirical results. This MA literature addresses four main themes. First, individuals’ subjective valuation of monetary payoffs often depends on frames (reference points) provided by MA, and frames can influence the use of MA information in decision making. Second, the subjective value of non-monetary (social) payoffs from sources such as fairness, honesty, reciprocity, social identity or affect influence and are influenced by individuals’ MA-related decisions. Third, individuals’ subjective models of MA-related decisions often incorporate predictable simplifications that influence and are influenced by MA. Fourth, MA can influence — sometimes bias or limit — individuals’ learning, and learning influences MA, as individuals acquire parameter and variable values or the information to estimate them subjectively. We also identify two emerging themes and three gaps in the psychology-based MA literature.
Dishonesty plays a large role in the economy. Causes for (dis)honest behavior seem to be based partially on external rewards, and partially on internal rewards. Here, we investigate how such external and internal rewards work in concert to produce (dis)honesty. We propose and test a theory of self-concept maintenance that allows people to engage to some level in dishonest behavior, thereby benefiting from external benefits of dishonesty, while maintaining their positive view about themselves in terms of being honest individuals. The results show that (1) given the opportunity to engage in beneficial dishonesty, people will engage in such behaviors; (2) the amount of dishonesty is largely insensitive to either the expected external benefits or the costs associated with the deceptive acts; (3) people know about their actions but do not update their self-concepts; (4) causing people to become more aware of their internal standards for honesty decreases their tendency for deception; and (5) increasing the "degrees of freedom" that people have to interpret their actions increases their tendency for deception. We suggest that dishonesty governed by self-concept maintenance is likely to be prevalent in the economy, and understanding it has important implications for designing effective methods to curb dishonesty.Former working paper titles:“(Dis)Honesty: A Combination of Internal and External Rewards” and "Almost Honest: Internal and External Motives for Honesty")
Financial economics has traditionally posited a limited role for idiosyncratic noneconomic manager-specific influences, but the strategic management literature suggests such individual influences can affect corporate outcomes. We investigate whether individual managers play an economically significant role in voluntary corporate financial disclosure. Tracking managers across firms over time, we find top executives exert unique and economically significant influence (manager-specific fixed effects) on their firms’ voluntary disclosures, incremental to those of known economic determinants of disclosure, and firm- and time-specific effects. We further show that managers’ unique disclosure styles are associated with observable demographic characteristics of their personal backgrounds: Managers promoted from finance, accounting, and legal career tracks, managers born before World War II, and those with military experience develop disclosure styles with conservative characteristics, and managers from finance and accounting and those with military experience favor more precise disclosure styles. These plausible associations confirm that our estimated manager-specific fixed effects capture systematic long-lived differences in managers’ unique disclosure styles.
Extreme narcissistic organizations are unable to behave ethically because they lack a moral identity. While such organizations
are not necessarily unethical intentionally, they become self-obsessed and use a sense of entitlement, self-aggrandizement,
denial, and rationalizations to justify anything they do. Extreme narcissistic organizations might develop formal ethics programs,
but such programs will have little effect on behavior.
This study investigates whether increasing a superior’s span of control improves the effectiveness of the budgeting process.
We characterize the superior’s utility function as consisting of utilities for norm enforcement and wealth, leading the superior
to reject profitable projects believed to contain excessive slack. We develop theory to predict that superiors become more
willing to reject projects as their span of control increases. Further, subordinates anticipate superiors’ behavior and reduce
slack as span of control increases. Experimental results are consistent with these predictions. As span of control increases,
superiors show a greater willingness to reject projects that they believe contain excessive slack, and subordinates submit
budgets with less slack. The net result is that superiors earn more profit per subordinate under an expanded span of control.
Our study suggests that increasing span of control can improve the effectiveness of the budgeting process, an important component
of most firms’ control environments.
KeywordsCapital budgeting-Organizational structure-Informal management control systems-Norm enforcement
JEL ClassificationD02-D03-D82-M40-M55
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This study reports the results of three experiments that examine how preferences for wealth and honesty affect managerial reporting. We find that subjects often sacrifice wealth to make honest or partially honest reports, and they generally do not lie more as the payoff to lying increases. We also find less honesty under a contract that provides a smaller share of the total surplus to the manager than under one that provides a larger share, suggesting that the extent of honesty may depend on how the surplus is divided between the manager and the firm. The optimal agency contract yields more firm profit than a contract that relies exclusively on honest reporting. However, a modified version of the optimal agency contract, which makes use of subjects' preferences for honest reporting, yields the highest firm profit. These results suggest that firms may be able to design more profitable employment contracts than those identified by conventional economic analysis.
This review identifies subjective decision-making processes related to management accounting (MA) and uses these processes as a basis for organizing psychology-based research on MA. For each decision process we identify families of related psychology models that have supported robust theory-consistent empirical results. This MA literature addresses four main themes. First, individuals' subjective valuation of monetary payoffs often depends on frames (reference points) provided by MA, and frames can influence the use of MA information in decision making. Second, the subjective value of non-monetary (social) payoffs from sources such as fairness, honesty, reciprocity, social identity or affect influence and are influenced by individuals' MA-related decisions. Third, individuals' subjective models of MA-related decisions often incorporate predictable simplifications that influence and are influenced by MA. Fourth, MA can influence - sometimes bias or limit - individuals' learning, and learning influences MA, as individuals acquire parameter and variable values or the information to estimate them subjectively. We also identify two emerging themes and three gaps in the psychologybased MA literature.
A menu of paired lottery choices is structured so that the crossover point to the high-risk lottery can be used to infer the degree of risk aversion. With normal laboratory payoffs of several dollars, most subjects are risk averse and few are risk loving. Scaling up all payoffs by factors of twenty, fifty, and ninety makes little difference when the high payoffs are hypothetical. In contrast, subjects become sharply more risk averse when the high payoffs are actually paid in cash. A hybrid "power/expo" utility function with increasing relative and decreasing absolute risk aversion nicely replicates the data patterns over this range of payoffs from several dollars to several hundred dollars.
This paper investigates reporting honesty if managers have monetary incentives to overstate their performance. We argue that managers reporting their performance will take into account how their report affects their peers (i.e. other managers at the same hierarchical level). This effect depends on the design of the organization’s control system, in particular on its reward structure and the transparency of the reporting process. The reward structure determines if peers’ monetary payoff is increased or decreased when managers claim a higher level of performance. The transparency of the reporting process determines if managers will be able to link individual peers to their reports and affects the non-monetary costs of breaking social norms. We present the results of a laboratory experiment. As predicted, we find that participants are more likely to overstate their performance if this increases the monetary payoff of others than if their reported performance decreases others’ monetary gains. In addition, overstatements are lower when each individual’s reported performance is made public compared to a system where participants only learn the average performance of the other participants. Our findings have several important implications for management accounting research and practice.
This study documents evidence consistent with herding in voluntary disclosure decisions in the context of capital expenditure forecasts and investigates two possible reasons for this behavior. Theories of rational herds suggest that herding in disclosure decisions may be due to either (1) the influence of information reflected in peer firms' past disclosure decisions (informational herding), and/or (2) managers' concern for their reputations (reputational herding). Using duration analysis for repeated events, we examine the timing of capital expenditure forecasts for a broad sample of disclosing and nondisclosing firms. We predict and find that the propensity to release capital expenditure forecasts is positively associated with the proportion of prior disclosing firms within the same industry, thus, providing evidence of herding. We also find that this positive association is even higher for firms in highly concentrated industries and firms with low barriers to entry. This finding suggests that firms facing relatively high industry competition may have greater incentives to herd. To provide further evidence of the underlying sources of this behavior, we examine whether the tendency to herd varies with the information content and specificity of prior same-industry forecasts, and with the level of managerial reputation. Our findings show that managers are more likely to disclose their expenditure plans when prior peer forecasts signal a decrease in future capital spending and when prior peer forecasts are more precise. Furthermore, we find that less reputable managers exhibit greater tendencies to herd in their disclosure decisions. These findings indicate that informational and reputational factors are both significant sources of herding in voluntary disclosure decisions.
Agents who perform interrelated tasks or work in similar local conditions often share costless information about each other. However, such information is often costly for the principal to obtain. Analytical models show that in such a situation, a peer monitoring system with a verification mechanism (using one agent's information to verify the other's) and a reward for truthful whistle blowing can induce agents to report honestly and thereby help the principal achieve the first-best outcome. However, other research suggests that the agents' perception regarding the fairness of the principal as well as the cheap talk among agents might affect both how honestly agents report and how willing they are to blow the whistle on their peers. The results of my experiments show that under the peer monitoring system, the agents' perception regarding the fairness of the principal positively affected the agents' reporting honesty and negatively affected the agents' rate of collusion. Communication between agents decreased their honesty and their whistle blowing when the principal was perceived as unfair, but not when the principal was perceived as fair.
Research in budgeting suggests that subordinates may exhibit economically significant degrees of honesty, in spite of pecuniary incentives to do otherwise. This study continues the exploration of honesty in budgeting along two dimensions. First, unlike prior experiments, we measure the incremental effect of honesty by manipulating whether budget requests are made in the form of a factual assertion. Second, prior designs may have emphasized the ethical dimension of budgeting by granting the subordinate wide discretion over setting the budget, whereas we manipulate whether the subordinate or the superior has final authority over setting the budget. We find that less slack is created when budget communication requires a factual assertion in the subordinate authority treatment, but not when the superior has final authority. Hence, we find an incremental effect of honesty only when the subordinate has final authority. We conjecture, and provide some evidence, that this is due to subordinates framing the superior authority situation as one of negotiation where each party acts in his or her self-interest, rather than as an ethical dilemma. This view, that budgeting is essentially devoid of ethical considerations, is consistent with some recent characterizations of budget practices.
Having been largely unknown as a clinical entity, the narcissistic personality has recently come into the limelight. It is argued that one critical component in the orientation of leaders is the quality and intensity of their narcissistic development. In this paper, the relationship between narcissism and leadership is explored. Using concepts taken from psychoanalytic object relations theory, three narcissistic configurations found among leaders are presented: reactive, self-deceptive, and constructive. Their etiology, symptomatology, and defensive structure is discussed. The influence of each configuration on interpersonal relations and decision-making is examined in a managerial context.
A new status value theory of power is proposed that bridges two previously distinct research literatures. The theory asserts that exchangeable objects controlled by high-status actors are perceived to be more valuable when relevant to positive status characteristics. This phenomenon is predicted to confer power to high-status actors who exchange with low-status actors. The theoretical argument represents an important link between exchange theories of power and the research on status hierarchies-two areas that until now have been sharply demarcated. The theory is tested with a series of experiments in which status-differentiated subjects negotiate exchanges using a computerized bargaining system. The results indicate: (1) Positive status characteristics accentuate the perceived value of resources; (2) high-status subjects are most often chosen as the preferred exchange partner; and (3) high-status subjects obtain the greatest share of resources indicating power use. The implications for sociological theories of power and status are discussed.
Purpose
– This paper aims to look at some of the implications of organisational psychopaths for organisations and corporations.
Design/methodology/approach
– This paper defines organisational psychopaths as being those psychopaths who exist at an incidence of about 1 percent of the general population and who work in organisations. The paper describes how these organisational psychopaths are able to present themselves as desirable employees and are easily able to obtain positions in organisations. Without the inhibiting effect of a conscience they are then able to ruthlessly charm, lie, cajole and manipulate their way up an organisational hierarchy in pursuit of their main aims of power, wealth and status and at the expense of anyone who gets in their way.
Findings
– The paper suggests that, just as criminal psychopaths are responsible for a greater share of crimes than their numbers would suggest, so too organisational psychopaths may be responsible for more than their fair share of organisational misbehaviour including accounting fraud, stock manipulation, unnecessarily high job losses and corporately induced environmental damage.
Originality/value
– The paper suggests that having organisational psychopaths running corporations that are themselves, at best, amoral is a recipe for negative consequences.
One reason for writing this book was to bring together all [the] research into one comprehensive package that provides a more complete picture of what we know about desire for control.
I maintain throughout the book that desire for control is a general personality trait with relevance to a large number of behaviors of interest to psychologists. . . . As will be seen, research demonstrates that individual differences in desire for control affect both social behavior and traditional clinical phenomena. . . . Consequently, a second reason for writing this book was to illustrate how desire for control helps to tie social and clinical phenomena together. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Keywords:Honesty;Impression management;Information systems;Participatory budgeting
This study investigated the effects of narcissists' chronic preoccupation with satisfying ego concerns on intrinsic motivation. Extending Harackiewicz and Sansone's (1991)“goal-matching” model, we hypothesized that intrinsic motivation depends on the congruence between the goals supported by the environment and the chronic goals the individual brings to the situation. High and low narcissistic students were randomly assigned feedback emphasizing either ego goals (competence is assessed relative to others) or mastery goals (competence is self-referential). Consistent with prediction, male narcissists experienced the most enjoyment, most positive affect, and least apprehension in the ego-goal conditions, whereas low narcissists showed the highest intrinsic motivation with mastery-focused goals. Potential gender differences in narcissism are considered to explain the absence of this pattern for females. The findings extend current understanding of the phenomenology of narcissism, as well as supporting the “goal-matching” model. Discussion revolves around the processing dynamics of male narcissists and possible negative consequences of their continual struggle to demonstrate competence relative to others.
Clustered data is very common, such as the data from paired eyes of the same patient, from multiple teeth of the same mouth, from animals of the same litter, from siblings in the same family. The key feature of clustered data is that outcomes from the same cluster are likely to be positively correlated. The proper analysis of clustered data requires taking this correlation into consideration. The ignorance of such correlation can bias the statistical infer-ence. This paper provides an overview on the availability of built-in SAS procedures and user-developed SAS macros for the analysis of clustered data from Ophthalmology studies. It covers the non-model based analysis by PROC TTEST, PROC UNIVARIATE and %CLUSWILCOX for the parametric and nonparametric comparison of paired continuous data; PROC FREQ, %MHADJUST and %CLUSTPRO for the comparison of balance or unbalanced paired binary data; followed by the model-based analysis using PROC GENMOD, PROC MIXED, PROC GLIM-MIX, PROC NLMIXED, PROC PHREG and %GAMFRAIL for clustered continuous, binary, count and survival data. We conclude that SAS is very powerful for analyzing clustered data.
This study examines control in a teamwork setting, experimentally investigating two financial incentive systems that have been proposed in the agency theory-based analytic literature. Both systems rely on mutual monitoring, the ability of team members to observe each other's actions. However, the systems differ on whether team members report observations of their peers' efforts to management (vertical incentive system) or directly control the actions of each other (horizontal incentive system). Findings suggest that the effectiveness of these systems depends on the level of team identity. Specifically, a strong team identity leads to greater coordination. The result is that the effectiveness of a vertical incentive system is degraded by a strong team identity. On the other hand, a horizontal incentive system becomes more effective in the presence of a strong team identity. The results of this study suggest that when the team has achieved a high level of identity, the most effective way to use this information is likely horizontal in nature, delegating responsibility for control to self-managed teams, rather than extracting the information through reporting mechanisms. This study thus helps explain why firms have more readily embraced horizontal incentive systems than vertical incentive systems.
This study examines the behavioral impact of an information system, and how that impact varies with the information system's precision, in an internal reporting environment. In order to examine behavioral effects, we do not permit the owner to contract on the system's output. We propose that a manager's reporting decisions are affected by his tradeoff of the benefits of appearing honest against the benefits of misrepresentation. An owner's information system affects the manager's tradeoff by improving the owner's ability to make an inference regarding the manager's level of honesty. Thus, to the extent that the manager perceives benefits to appearing honest, the presence of an information system can increase managerial honesty. As the information system becomes more precise, however, the manager must forego greater benefits of misrepresentation in order to achieve the same appearance of honesty. For managers under a precise system, this will shift the tradeoff decision toward the benefits of misrepresentation and away from the benefits of appearing honest. Notably, in our experiment the only benefit of appearing honest is an intrinsically-motivated desire for social approval. Our experimental results are consistent with the tradeoff notion. We find that, although the existence of an information system increases managerial honesty, honesty is lower under a precise than a coarse information system. We also compare profit earned by the owners in our experiment, which relies on a behavioral role of an information system, to the maximum profit theoretically possible given a contractual use of the information system. This comparison suggests that, unless the available information system is sufficiently precise, the owner will obtain greater profits by not contracting on its output, even if that output is fully contractible.
The paper examines whether firms are more likely to meet or beat analysts’ expectations (MBE) when there are more rivals with non-negative earnings surprises. First, we find that after controlling for rival firms earnings information for the period, firms are more likely to meet analysts’ expectations when a higher proportion of rivals firms meet their analysts’ estimates. Second, we find that the positive association is more pronounced for firms in high competition industries than for firms in low competition industries. Additional analyses indicate that for MBE firms, their managers make decreased use of downward expectations management to avoid negative earnings surprises when there are a higher proportion of MBE rivals firms. The findings indicate that firms have a tendency to meet a higher target when more rivals achieve expectations. Specifically, splitting MBE firms into high and low competition industries, we find that when more rivals meet earnings expectations, firms in high competition industries are more likely to make decreased use of downward expectations management whereas firms in low industries are more likely to make increased use of upward earnings management. We find that although firms meeting expectations are likely to issue earnings reports earlier than expected, and earlier than those missing expectations, our main inferences are not driven by timeliness of earnings reports. Finally, further analyses indicate that our results are robust after controlling for investors’ sentiment.
Prior research in finance and accounting generally posits a limited role for idiosyncratic manager-specific attributes in explaining accounting and disclosure choices. In contrast, upper echelons theory, originating in the strategic management literature, suggests that differences among individuals can affect corporate outcomes. Extant research in voluntary disclosure follows the traditional financial economics perspective, yet even the most comprehensive empirical models leave most of the cross-sectional variation in disclosure unexplained. This prompts us to investigate whether these models are missing a major component: Do idiosyncratic differences among individual managers play a significant incremental role in voluntary corporate financial disclosure? We build a data set that tracks managers over time, which allows us to isolate manager-specific fixed effects after controlling for firm effects. We find that top executives do exhibit unique individual-specific and economically significant disclosure styles. That is, our evidence suggests that individual managers significantly influence attributes of their firms' voluntary disclosures, even after controlling for techno-economic determinants of disclosure identified in prior research, and firm- and time-specific effects. The collective magnitude of these manager-specific fixed effects is large: Manager-specific effects explain roughly as much or more of the variation in disclosure as the known techno-economic determinants combined. We then investigate whether managers' unique fixed effects are associated with observable characteristics of their own personal backgrounds. We find that managers promoted from finance, accounting, and legal career tracks, managers born before World War II, and managers holding MBAs tend to exhibit more conservative disclosure styles. These associations between our estimates of managers' fixed effects and distinctive (permanent) characteristics of their own personal backgrounds provide evidence confirming that our estimated manager fixed effects capture systematic long-lived differences in managers' unique disclosure styles. Our results suggest that individual-specific effects play an important - yet heretofore largely unexplored - role in voluntary financial disclosure. Further investigation of the role unique individual characteristics play in explaining corporate financial reporting is potentially a fruitful direction for future research.
Auditing standards prescribe that the auditor should consider a client management’s motivation, opportunity, and attitude (or the ability to rationalize fraud) when making fraud risk assessments. However, little guidance is provided in the auditing standards or the existing fraud literature on observable indicators of fraud attitude. In this paper, we test the proposition that narcissism, a personality trait linked to low personal integrity, is a reliable and observable proxy for fraud attitude. We administered an experiment to 160 practicing auditors, who assessed financial fraud risk and the scope of related audit procedures based on a scenario in which client manager narcissism, motivation, and opportunity were each manipulated at two levels (low and high). Our results show that perceived narcissism and motivation were significantly and positively related to auditors’ fraud risk and audit procedure scope assessments, and that narcissism effects dominated both motivation and opportunity effects on fraud judgments. Implications of these findings for further research, corporate governance, and the auditing profession are discussed.
Prior research argues that sequential decisions lead to a slippery slope toward wrongdoing, with little evidence to support such claims. We conduct two experiments which demonstrate the existence of the slippery slope in a controlled setting, and investigate whether it leads “good people” to do “bad things.” Our first experiment manipulates whether the potential for wrongdoing sequentially increases or decreases. We find that low-Machiavellians commit larger cumulative wrongdoing when the opportunities are increasing in magnitude, consistent with slippery slope behavior. High-Machiavellians are less susceptible to slippery slope behavior. Our second experiment replicates these results for a more unethical decision, and shows that low-Machiavellian participants who engage in slippery slope behavior undergo a change in beliefs about the appropriateness of engaging in wrongdoing. Our study confirms the slippery slope toward misconduct, suggests that cognitive dissonance is likely to play a role in the phenomenon, and highlights differences in susceptibility across individuals.
This study reports the results of three experiments that examine how preferences for wealth and honesty affect managerial reporting. We find that subjects often sacrifice wealth to make honest or partially honest reports, and they generally do not lie more as the payoff to lying increases. We also find less honesty under a contract that provides a smaller share of the total surplus to the manager than under one that provides a larger share, suggesting that the extent of honesty may depend on how the surplus is divided between the manager and the firm. The optimal agency contract yields more firm profit than a contract that relies exclusively on honest reporting. However, a modified version of the optimal agency contract, which makes use of subjects' preferences for honest reporting, yields the highest firm profit. These results suggest that firms may be able to design more profitable employment contracts than those identified by conventional economic analysis.
We examine whether vocal markers of cognitive dissonance are useful for detecting financial misreporting. We use speech samples of CEOs during earnings conference calls and generate vocal dissonance markers using automated vocal emotion analysis software. We begin by assessing construct validity for the software-generated dissonance markers by correlating them with four dissonance-from-misreporting proxies obtained in a laboratory setting. We find a positive association between these proxies and vocal dissonance markers generated by the software, suggesting the software’s dissonance markers have construct validity. Applying the software to CEO speech, we find that vocal dissonance markers are positively associated with the likelihood of irregularity restatements. The diagnostic accuracy levels are 11% better than chance and of similar magnitude to models based solely on financial accounting information. Moreover, the association between vocal dissonance markers and irregularity restatements holds even after controlling for financial accounting and linguistic based predictors. Our results provide new evidence on the role of vocal cues in detecting financial misreporting.
A detailed analysis of 49 firms subject to AAERs suggests that approximately one-quarter of the misstatements meet the legal standards of intent. In the remaining three quarters, the initial misstatement reflects an optimistic bias that is not necessarily intentional. Because of the bias, however, in subsequent periods these firms are more likely to be in a position in which they are compelled to intentionally misstate earnings. Overconfident executives are more likely to exhibit an optimistic bias and thus are more likely to start down a slippery slope of growing intentional misstatements. Evidence from a high-tech sample and a larger and more general sample support the overconfidence explanation for this path to misstatements and AAERs.
Today's business leaders maintain a markedly higher profile than their predecessors did in the 1950s through the 1980s. Rather than hide behind the corporate veil, they give interviews to magazines like Business Week, Time, and the Economist. According to psychoanalyst, anthropologist, and consultant Michael Maccoby, this love of the limelight often stems from their personalities - in particular, what Freud called a narcissistic personality. That is both good and bad news: Narcissists are good for companies that need people with vision and the courage to take them in new directions. But narcissists can also lead companies into trouble by refusing to listen to the advice and warnings of their managers. So what can the narcissistic leader do to avoid the traps of his own personality? First, he can find a trusted sidekick. Good sidekicks can point out the operational requirements of the narcissistic leader's often grandiose vision and keep him rooted in reality. Second,the narcissistic leader can get the people in his organization to identify with his goals, to think the way he does, and to become the living embodiment of the company. Finally, if narcissistic leaders can be persuaded to undergo therapy, they can use tools such as psychoanalysis to help overcome vital character flaws. With the dramatic discontinuities going on in the world today, more and more large corporations are finding there is no substitute for narcissistic leaders. For companies whose narcissistic leaders recognize their limits, these will be the best of times. For other companies, these could be the worst.
We add texture to the conclusion of Duchon and Drake (Journal of Business Ethics, 85, 2009, 301) that extreme narcissism is associated with unethical conduct. We argue that the special features possessed by financial
accounting facilitate extreme narcissism in susceptible CEOs. In particular, we propose that extremely narcissistic CEOs are
key players in a recurring discourse cycle facilitated by financial accounting language and measures. Such CEOs project themselves as the corporation they lead, construct a narrative about the corporation and themselves using financial accounting measures, and then reflect on how their accounting-constructed performance is perceived by stakeholders. We do not present empirical evidence about
whether the use of accounting language and measures leads to unethical behaviour by extreme narcissistic CEOs – although the
conclusions of Duchon and Drake (2009) suggest empirical support is probable. Rather, we focus on developing alertness to the potential for accounting, when engaged by an extremely narcissistic CEO, to be a precursor or implement of unethical behaviour.
Keywordsaccounting-behaviour-chief executive officer-discourse-language-leadership-narcissism-psychology
In this paper, I discuss the importance of conducting experimental research in managerial accounting and provide a framework for understanding and assessing the contributions of research in this area. I then use this framework to organize, integrate, and evaluate the existing experimental managerial accounting research. Based on my review and synthesis of the literature, I suggest numerous avenues for future experimental research in managerial accounting.
This paper pulls together several strands of literature on issues importantto social welfare: the environmental impact of production and consumption, the importance of relative-income effects, aspiration and frustration, and the tendency of individuals and politicians to be myopic in intertemporal choices. These factors are compressed into a simple model from which some significant conclusions with significant real-world policy implications are deduced. Economic growth, which appears very important at the individual or even national levels, may reduce social welfare unless it is accompanied by increased environmental protection and/or other welfare-improving measures. Some analyses towards the quantification of the responses of welfare to absolute income, relative income, and aspiration satisfaction are also provided. These responses (in proportionate or elasticity terms) are all smaller at higher levels of the income scale.
Status-seeking games are games in which an individual's utility is determined by his relative expenditure on status-seeking activities rather than his absolute consumption. There are a number of parallels between status-seeking and rent-seeking activities, for example, a tendency for Pareto excessive private investment. However, many status-seeking activities differ from rent-seeking activities insofar as they generate significant benefits to individuals not actively involved in the game. Given an array of more or less productive status-seeking games, it is likely that relatively efficient status conferring mechanisms will tend to displace less efficient ones.
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