We introduce the concept of fraud tolerance, validate the conceptualization using prior studies in economics and criminology as well as our own independent tests, and explore the relationship of fraud tolerance with numerous cultural attributes using data from the World Values Survey. Applying partial least squares path modeling, we find that people with stronger self-enhancing values exhibit higher fraud tolerance. Further, respondents who believe in the importance of hard work exhibit lower fraud tolerance, and such beliefs mediate the relationship between (...) locus of control and fraud tolerance. Finally, we find that people prone to traditional gender stereotypes demonstrate higher fraud tolerance and document subtle differences in the influence of these cultural attributes across age, religiosity, and gender groups. Our study contributes to research on corporate governance, ethics, and the antecedents of work-place dishonesty. (shrink)

Despite regulatory reforms aimed at inhibiting aggressive financial reporting, earnings management persists and continues to concern practitioners, regulators, and standard setters. To provide insight into this practice and how to mitigate it, we conduct an experiment to examine the impact of two independent variables on CFOs’ discretionary expense accruals. One independent variable, incentive conflict, is manipulated at two levels —i.e., the presence or absence of a personal financial incentive that conflicts with a corporate financial incentive. The other independent variable is (...) CFOs’ earnings management ethics, measured as their assessment of the ethicalness of key earnings management motivations. We find that incentive conflict and EM-Ethics interact to determine CFOs’ discretionary accruals such that in the presence of incentive conflict, CFOs with low EM-Ethics tend to give into the personal incentive by booking higher expense accruals; and in the absence of an incentive conflict, CFOs with low EM-Ethics tend to give into the corporate incentive by booking lower expense accruals. We also find support for a mediated-moderation model in which CFOs’ level of EM-Ethics influences their moral disengagement tendencies which, in turn, differentially affect their discretionary accruals, depending on the presence or absence of incentive conflict. Theoretical and practical implications of these findings are discussed. (shrink)

Some researchers interested in assessing moral reasoning among business practitioners or students have developed their own vignettes or scenarios set in business contexts, based on assumptions that the situations presented in the often-used Defining Issues Test (DIT) will somehow be inappropriate for these specific types of respondents. This paper is the first to examine in depth both the actual details contained in these business-oriented scenarios and empirical findings emerging from them. Among this paper’s conclusions are: (1) assumptions underpinning the presumed (...) superiority of business-oriented vignettes have yet to be tested; (2) the DIT possesses considerable advantages unavailable in alternative measures; (3) many business-oriented scenarios have underlying Dilemma themes that seem inherently ambiguous and thus of questionable relevance for assessing moral reasoning; (4) these scenarios have no obvious equivalent in the DIT and thus cannot definitively be placed under the umbrella of the latter’s demonstrated construct validity; and (5) meaningful empirical findings have not clearly emerged from investigations using business-oriented vignettes. In light of these conclusions, we recommend that investigators interested in moral reasoning advance knowledge in a coherent and unified way by using the DIT that seems entirely appropriate for use among respondents with business experience or training. Although alternative measures may have value for assessing ethical judgments, evidence of their validity as a measure of moral reasoning is lacking. (shrink)