This study examines whether microfinance institutions (MFIs) that serve women borrowers at the base of the economic pyramid are likely to adopt a written code of positive organizational ethics (POE). Using econometric analysis of operational and economic data of a sample of MFIs from across the world, we find that two contextual factors—poverty level and lack of women’s empowerment—moderate the influence of an MFI’s percentage of women borrowers on the probability of the MFI having a POE code. MFIs that serve (...) more women borrowers are more likely to adopt a POE code, especially in negative contexts (where women borrowers face poverty and disempowerment and are therefore susceptible to abuse). This study provides evidence that MFIs can build positive ethical strength in negative contexts. (shrink)

I examine social capital’s impact on financial reports. Based on the social capital literature, I predict that the quality of the financial reports is higher when a firm is headquartered in a region with high social capital. Consistent with this prediction, I find that the firms that are headquartered in this type of region in the USA have a lower probability of committing fraud by misrepresenting financial information. Further, I find that the firms in regions with high social capital have (...) lower levels of discretionary accruals and much more readable annual reports. (shrink)

We investigate the relationship between the dark triad personality traits (Machiavellianism, narcissism, and psychopathy) of managers and the practice of reporting manipulation using a primary survey of 837 professionals working in accounting and finance departments. We find that (a) managers who exhibit dark personality traits are associated with a higher prevalence of fraudulent accounting practices in their accounting and finance departments and (b) traditional risk management mechanisms are only partially effective in mitigating this effect. Internal audits are effective in curtailing (...) the negative behavior of managers with dark triad traits only if these internal audits are outsourced and performed by independent external personnel but not if they are conducted by internal personnel. This suggests that managers with dark triad traits are able to manipulate other employees quite effectively. Consequently, having external personnel perform the auditing task provides a safeguard against such unethical practices and manipulation. This finding has strong practical implications, as it provides support for outsourcing internal audits rather than keeping them in-house. (shrink)