The pandemic has altered accounting education with the widespread adoption of remote evaluation platforms. We apply the lens of the fraud triangle to consider how the adoption of remote evaluation influences accounting students’ ethical values by measuring the incidence of cheating behavior as well as capturing their perceptions of their opportunity to cheat and their rationalization of cheating behavior. Consistent with prior research, our results show that cheating is higher in the online environment compared to remote evaluation, although the use (...) of proctoring software in online evaluation appears to mitigate but not eliminate students’ the unethical behavior. However, cheating was not reduced when students attest to an honor code during the beginning of an exam. Nonetheless, we find that the use of both proctoring software and honor codes reduces students’ perceptions of opportunity and rationalization of cheating behavior. It follows that the remote evaluation environment may unintentionally be negatively influencing the ethicality of students and future accounting professionals by promoting cheating behavior and, by so doing, negatively influencing the development of unethical values of accounting students and future accounting professionals. Educators should consider the use of appropriate educational interventions to reduce the incidence and opportunities for unethical behavior and, by so doing, help promote the development of ethical values in future accounting professionals. Further implications for teaching and the accounting profession are discussed. (shrink)

The relationship between analysts' forecasts and corporate fraud is a vital theoretical and practical question that needs to be clarified. Based on a strict distinction between negative performance gaps relative to analyst forecasts (negative forecast gaps hereinafter) and analyst coverage, this study investigates the influence of analyst forecasts on corporate fraud from a panoramic perspective. Using panel data on listed companies in China from 2008 to 2019, we find that short-term performance pressure caused by negative forecast gaps is significantly positively (...) correlated with firms’ possibility for fraudulent behavior. However, this positive correlation is weaker in state-owned enterprises than in their non-state-owned counterparts. Further, as a key external governance mechanism, analyst coverage enhances the negative moderator effect of state ownership on the positive relationship between negative forecast gaps and the likelihood of corporate fraud. (shrink)

This work empirically tests the concept of the ‘whistleblowing triangle,’ which is modeled on the three factors encapsulated by the fraud triangle, in the Indonesian context. Anchored in the proposition of an original research framework on the whistleblowing triangle and derived hypotheses, this work aims to expand the body of knowledge on this topic by providing empirical evidence. The sample used is taken from audit firms affiliated with both the big 4 and non-big 4 companies operating in Indonesia. The results (...) of analysis using the PLS-PM method found a significant relationship between the components of the whistleblowing triangle and the intention of blowing the whistle. We found that financial incentives are the most significant predictor of auditors’ intention to blow the whistle in Indonesia. Other components, such as opportunity and rationalization, also play an important role in supporting auditors’ intention to blow the whistle. Our findings also suggest that related pressures are the top priority for audit firms in Indonesia to consider in increasing whistleblowing intention. We expand the previous literature on whistleblowing which has been derived from the components of the fraud triangle :28–56, 2016; Smaili and Arroyo in J Bus Ethics, https://doi.org/10.1007/s10551-017-3663-7, 2017) by adding empirical evidence. (shrink)

Corruption continues to represent a tenacious challenge to internationally active companies. According to prevailing international anti-corruption standards, a company can be held criminally liable if it does not put all necessary and reasonable organizational measures in place to prevent corruption. The regular training of employees is considered one of the most effective ways to prevent corruption. Employee training is considered helpful in efforts to minimize the risk of employees becoming involved in corrupt behavior. With this idea in mind and building (...) on the fraud triangle model and neutralization theory, this paper examines whether business professionals who have undergone anti-corruption training are more likely to reject prevailing justifications of corrupt practices than are those who have not undergone such training. The empirical analysis in this paper is based on regression models using data obtained from a unique dataset that includes 200 business professionals. The findings provide evidence that training is positively linked to the likelihood of rejecting justifications of corruption. However, the research also suggests that methods of training must become more specific in order to tackle challenging questions regarding the gray areas of ethics and compliance. (shrink)

This study suggests that unrelated diversification has a positive influence on the probability of fraudulent reporting whereas related diversification has a negative influence on the probability of fraudulent reporting. The strength of the influence of these corporate level strategies is contingent on the moral character of the firm. Unrelated diversification provides opportunity for financial innovation within the firm’s internal capital market, which can result in fraudulent reporting. This is more likely when the moral character of the firm is driven by (...) a conscienceless financial self-interest motive, as implied by the firm’s contempt toward the larger community (in terms of damage inflicted on the interests of people outside the firm). In contrast, related diversification, where product divisions focus on mutual sharing and monitoring of operational activities, can reduce the probability of fraudulent reporting. This is more likely when constituents within the firm view themselves as moral citizens, as implied by the firm’s benevolence toward the larger community. Hence, while unrelated diversification focuses the energies of managers within the firm on financial manipulation, related diversification focuses these energies on productive purposes. (shrink)

Occupational fraud frequently involves the direct or indirect participation of professional accountants. To reduce fraud, companies often focus on the incentive/pressure and opportunity legs of the fraud triangle, perhaps believing that rationalization is beyond their control. We argue that rationalization reduction is necessary to minimize occupational fraud. We propose that educators and PA consider incorporating fences as controls to reduce rationalization. Because they focus on compliance and risk avoidance and are non-negotiable, fences appeal to accountant’s Myers Briggs personalities and conventional (...) level of moral development. Educators can teach students about the fences used in practice, and explain how they help new professionals resist pressures and temptations. By adding fences to existing professional guidance, accountants can reduce the likelihood that they will be a party to fraud. (shrink)

While sustainability is largely associated with do-gooders, this article discusses whether and how fraud might also be an issue in sustainability departments. More specifically, transferring the concept of the fraud triangle to sustainability departments I discuss possible pressures/incentives, opportunities, and rationalizations/attitudes for sustainability managers to commit fraud. Based on interviews with sustainability and forensic practitioners, my findings suggest that sustainability managers face mounting pressure and have opportunities to manipulate due to an immature control environment. Whether a presumably morality-driven attitude may (...) prevent them from committing and easily rationalizing fraud remains controversial. Even though cases of fraud happening in sustainability departments are still widely unknown, the interview analysis reveals that sustainability fraud is likely to occur at least to some extent—and presumably remains undetected. The study brings to light the importance of a clear commitment from executives to sustainability to prevent sustainability fraud and demonstrates adverse developments driven by external stakeholders, specifically the bonus relevancy of sustainability index scores. In particular, the study shows a lack of awareness for potential fraud in sustainability departments. (shrink)

This study examines the relationship between family control and young entrepreneurial firm’s bribing behavior around the globe. Relying on over 2,000 young firms from the World Bank Environment Survey, we find that family control helps to reduce a firm’s bribery behavior, but further investigation shows that this effect only exists in countries with weaker macro-governance environment. In countries with more established and transparent governance mechanism, family control does not seem to make any difference. We interpret our findings as the business (...) family’s preservation of socioemotional wealth. (shrink)

Digital piracy as a continuing problem significantly impacts various stakeholders, including consumers, enterprises, and countries. This study develops a three-level mechanism of determinants of consumer digital piracy behavior, with personal risk as an individual factor, susceptibility to interpersonal influence as an inter-personal factor, and moral intensity as a broad societal factor. Further, it explores the role of rationalization and future piracy intent as outcomes of past piracy behaviors. The authors use survey data from four countries in the European Union to (...) test the system of structural relationships. With an exception of the effect of consumers’ susceptibility to interpersonal influence on piracy behavior, the conceptual model receives remarkably consistent support across the four countries. Specifically, perception of personal risk and moral intensity negatively affected the reported piracy behavior in all four countries. The results further support the negative influence of moral intensity and the positive influence of past digital piracy behavior on consumers’ use of rationalization. Lastly, personal risk, rationalization, and past digital piracy behavior directly influenced consumers’ intention to engage in digital piracy in the future. The study also discusses implications of the findings and identifies areas of future research. (shrink)

The purpose of this research is to examine the effect of two organizational variables, budget goal difficulty and promotion availability, on employee fraud. Limited research shows that difficult, specific goals result in more unethical behavior than general goals :422–432, 2004). We predict that goal difficulty and promotion availability will interact to affect employee fraud. Specifically, we contend that the availability of promotions will have little, if any, effect on employee fraud under easy goals but have a substantial effect on fraud (...) under extremely difficult goals. To test this prediction, we use an experiment in which participants play the role of production employees. All participants are assigned cost goals and are responsible for reporting costs to the organization. Information asymmetry exists such that the organization is unable to assess whether costs have been reported accurately, and any overstatement of costs directly increases the employee’s compensation at the expense of the organization. The results of our experiment support the prediction, even though the cost goal is not tied to current period compensation. Our results have implications for academics and practitioners concerned with factors that affect fraud in organizations. (shrink)

Despite the pervasive use of ethics training by companies, research in management accounting has not considered the effectiveness of such training in curtailing managers’ misreporting. This study examines the effect of ethics training on misreporting as a reminder to raise the awareness of employees’ ethical commitment. Furthermore, this study investigates the extent to which reciprocity in the workplace affects managers’ misreporting. The results from an experiment involving 124 managers show that in the absence of an ethical commitment reminder, managers are (...) more likely to engage in misreporting than when an ethical commitment reminder is present. The results suggest that ethical commitment reminder interacts with reciprocity in the workplace, affecting managers’ misreporting. Specifically, the results reveal that managers are more likely to engage in misreporting under the reciprocity in the workplace condition when the ethical commitment reminder is absent. The theoretical and practical implications of these findings are discussed. (shrink)

This article synthesizes insights from deterrence theory and social psychology literature on retributive justice to develop and test a theoretical model which predicts how and why observers’ tax compliance intentions are influenced by knowledge of the punitive outcomes faced by individuals found guilty of tax fraud. We test our model experimentally on a sample of Canadian taxpayers and manipulate perceived responsibility for a fraud and whether a fraud perpetrator is punished. We show that observers’ tax compliance increases when a fraud (...) perpetrator is punished only when the perpetrator is perceived as blameworthy. The psychological process through which this positive influence operates is relatively complex, as it includes perceptions of punishment deservingness and affect. We also find that tax compliance decreases when a tax fraud perpetrator is unpunished, regardless of perceived blameworthiness. Our results are robust when we control for economic determinants known to influence fraud. The article concludes by discussing our findings’ implications for fraud research and policy. (shrink)

In view of recent studies that identified certain interest groups as potential whistleblowers, we propose an integrative conceptual framework to examine whistleblower behavior by whistleblower type. The framework, dubbed the whistleblowing triangle, is modeled on the fraud triangle and is comprised of three factors that condition the act of whistleblowing: pressure, opportunity, and rationalization. For a rich examination, we use a qualitative research framework to analyze 11 whistleblowing cases of corporate financial statement fraud in Canada that were publicly denounced between (...) 1995 and 2012. Our analysis indicates that whistleblowers are not only insiders but also outsiders [financial analysts, auditing firms, journalists, politicians, customers, and investors]. It also suggests that a dynamic relation may exist between whistleblowers. In addition, our findings show that most whistleblowers opt for external channels when they fail to receive an adequate response from management, seek media exposure, are interested in financial benefits resulting from the act of whistleblowing, or are interested in protecting their investment. Lastly, we propose categorizing whistleblowers into four conceptual types: protective, skeptical, role-prescribed, and self-interested. (shrink)

Committing financial fraud is a serious breach of business ethics. However, there are few large scale studies of financial fraud, which involve ethical considerations. In this study, we investigate the pervasive financial scandals, which by the end of 2012 involved more than a third of the US-listed Chinese companies. Based on a sample of 262 US-listed Chinese companies, we analyze factors that differentiate between firms that commit financial fraud and those that do not. We find that firms more predisposed to (...) unethical behavior, due to their low regional social trust in the home country and low respect for regulations and laws as proxied by political connections, are more likely to commit accounting and financial fraud. They take advantage of low hurdles for listing via reverse mergers and avoid third-party monitoring through poor governance and auditors. Finally, we find evidence, after these scandals, of non-fraudulent firms differentiating themselves from the fraudulent firms by sending costly signals such as insiders purchasing shares, increasing dividends, and going private. (shrink)

The purpose of this article is to provide a theoretical review of the moral disengagement literature, integrating research that has been completed as well as identifying thought lacunas, including the subfield of organizational moral disengagement. It is proposed that because moral disengagement is an inherently interpersonal phenomenon, organizational moral disengagement should be a salient concern of both organizational and management researchers. A conceptual framework of organizational moral disengagement is suggested, examining moral disengagement at both the employee as well as manager/executive (...) level. Lastly, a series of propositions are proffered in order to provide direction to organizational moral disengagement researchers, including the proposition that moral disengagement is a function of interpersonal proximity and the possession or lack of organizational power. Methods for effectively studying organizational moral disengagement are suggested. (shrink)

This study examines how taxpayer support for government spending can improve tax compliance. While there is ample evidence on the deterrent effect of audit probability on taxpayer noncompliance, there is no evidence related to the moderating role that taxpayer support may have on compliance behavior. We also examine the moderating role that taxpayer ethics plays in compliance decisions. Results of our study indicate that the level of taxpayer support influences taxpayer compliance decisions, in that those with greater support for how (...) tax dollars are spent report higher amounts of taxable income. In addition, we find that audit probability influences taxpayer compliance decisions when there is support for the government’s use of tax dollars for non-welfare programs, such as defense. However, for welfare programs, such as healthcare, taxpayer support leads to increased compliance regardless of audit rate. When taxpayers do not support government programs, their compliance is lower regardless of the audit probability. This highlights the importance of gaining taxpayer support for government programs and indicates that attempts to align the interests of taxpayers with those of the government may increase voluntary compliance among taxpayers. Finally, we find that taxpayer ethics influences compliance such that, for individuals who have lower ethical standards, a high audit rate as well as support for a program may be necessary to improve compliance behavior. Theoretical and practical implications of these findings are discussed. (shrink)

In the aftermath of shocking workplace scandals, people are often baffled when individuals within the organization were aware of clear-cut wrongdoing yet did not inform authorities. The current research suggests that moral concern for the suffering that a transgressor might face if a crime were reported is an under-recognized, powerful force that shapes whistleblowing in organizations, particularly when transgressors are fellow members of a highly entitative group. Two experiments show that group entitativity heightens concern about possible consequences that the transgressor (...) would face if a crime were to be reported, and that this concern reduces the likelihood of reporting wrongdoing in organizations to authorities. Further, the studies identify a mechanism through which concern about the transgressor is heightened in highly entitative groups: potential reporters perceive that the transgressor felt remorse for their crime. Thus, when fellow members of highly entitative organizations commit crimes, people are more likely to imagine that these transgressors felt anxiety or guilt about their actions, and this prompts greater concern for transgressors in ways that encourage people to let them “off the hook.” We discuss the implications of these findings for how reporting to authorities can be encouraged within highly entitative organizations. (shrink)

We examine whether analyst coverage influences corporate fraud in China. The fraud triangle specifies three main factors, i.e. opportunity, incentive, and rationalization. On the one hand, analysts may reduce the fraud opportunity factor through external monitoring aimed at discouraging managerial misconduct, which can moderate agency problems. On the other hand, analysts may increase the fraud incentive factor by pressurizing managers to achieve short-term performance targets, which can exacerbate agency problem. In either case, the potential influence of analysts on the fraud (...) rationalization factor may be more pronounced among firms that are more dependent on the capital market for corporate finance. Using a sample of Chinese listed firms, we show a negative association between corporate fraud propensity and analyst coverage, and that this effect is more pronounced among non-state-owned enterprises, which are more reliant on the stock market for external funding. These findings suggest that analyst coverage contributes to corporate fraud deterrence in emerging economies characterized by weak investor protection. The main policy implication is that further development of the analyst profession in emerging economies may benefit investors and strengthen business ethics. (shrink)

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)

This study adds to the theory of family business management by exploring the effects of family ownership on the corporate misconduct of small firms in the United States. The empirical findings indicate that small family-owned firms are less likely to commit misconduct than small non-family-owned firms. We interpret this finding as family firms aiming to achieve the trans-generational succession of moral capital. Further investigation shows a nonlinear family-ownership–misconduct relationship. A negative relationship between them only appears in mature firms. We further (...) show that for relatively mature firms, only family firms with older owners are less likely to commit corporate misconduct. (shrink)

This paper argues that consumer demand for unethical behavior such as fraud can impact employee turnover through market and psychological forces. Widespread conditions of unethical demand can improve career prospects for employees of unethical firms through higher income and stability associated with firm financial health. Similarly, unethical employees enjoy increased tenure from the financial and psychological rewards of prosocial behavior toward customers demanding corrupt or unethical behavior. We specifically examine the well-documented unethical demand for fraud in the vehicle emissions testing (...) industry, and its impact on employee tenure. We use data from tests conducted by several thousand licensed inspectors to demonstrate that fraudulent employees and employees of fraudulent firms enjoy longer tenure. These results suggest further work to separate the multiple psychological and economic mechanisms likely driving our findings. (shrink)

There has been growing scholarly interest in understanding individual-level antecedents of counterproductive workplace behavior (CWB). While researchers have found a positive relationship between individuals’ negative affect and engagement in CWB, to date, our understanding of the factors which may affect this relationship is limited. In this study, we investigate the moderating roles of moral disengagement and gender in this relationship. Consistent with our hypotheses, we found that individuals with a greater tendency to experience negative emotions were more likely to engage (...) in CWB when they had a higher propensity to morally disengage. Moreover, we found that this interacting relationship varied across men and women. We discuss the theoretical and practical implications of our findings and offer avenues for future research. (shrink)

We examine the relation between worker substance abuse and workplace fraud in a sample of medical doctors. Relative to their peers, we observe that doctors engaging in substance abuse are between 50 and 100 times more likely to commit fraud in a given year. This result is consistent with research suggesting that substance abuse both creates financial pressures and impairs the functioning of cognitive self-regulatory mechanisms. Our results are robust in within-subject tests and between-subject tests, as well as in tests (...) using instrumental variables that exploit exogenous variation in the state-level availability of opioids, a commonly abused substance. (shrink)

This study investigates whether firms with fraudulent financial reporting time their earnings announcements strategically and finds that fraudulent firms are more likely to disclose their earnings in the after-market hours during their fraud periods to postpone fraud detection. Cross-sectional tests show that firms with lower visibility are more likely to adopt and benefit from this timing strategy. In addition, fraudulent firms are found to time their conference calls strategically and package their earning news with forecasts to flood the market with (...) information and lower the fraud detection rate. Results also show that unethical managers may benefit from insider trading when their firms use a timing strategy to lower the detection rate. This study sheds light on a potential strategy that unethical managers may adopt to camouflage their fraudulent financial reporting. These results are robust to a variety of settings of samples and model specifications. (shrink)

In response to numerous recent cases involving materially misstated financial information arising from fraudulent financial reporting, companies, auditors, and academics have increased their focus on strengthening internal controls as a means of deterring such unethical behaviors. However, prior research suggests that stronger controls may actually exacerbate the very opportunistic behavior the controls are intended to curb. The current study investigates whether the efficacy of an implemented control is conditioned on not only the strength of the control, but also on how (...) the firm frames the purpose for implementing the control. A monitoring purpose frames controls as reducing managers’ opportunities to engage in self-interested behavior, while a coordinating purpose frames controls as facilitating coordination between the firm and its managers. We posit that the efficacy of stronger controls to reduce unethical fraudulent reporting depends on the control frame. Using an experiment, this study investigates the interactive effect of control strength and control frame on managers’ fraudulent reporting decisions. As predicted, our results show that when controls are framed for monitoring purposes, stronger controls result in less fraudulent reporting than weaker controls. Conversely, when controls are framed for coordinating purposes, stronger controls result in more fraudulent reporting than weaker controls. Our results suggest that an inconsistency between the firm’s choice of the control strength and the control frame reduces the efficacy of the implemented control to curb unethical reporting behaviors. Furthermore, supplemental analysis shows that managers’ rationalization helps explain the interactive effect of control strength and communicated control purpose on fraudulent reporting. (shrink)

This study examines whether the delegated monitoring of main banks effectively decreases severe agency problems. For example, this includes accounting fraud in bank-dominated corporate governance. In this context, the fraud triangle specifies the three main factors of opportunity, incentive, and rationalization. Main banks may reduce the factor of opportunity through actions such as monitoring, which plays a moderating role by reducing the potential for managerial misconduct, whereas, the incentive factor may be enhanced through the subsequent pressure that influences managers to (...) force turnover when they do not repay debts. The potential influence that the main banks have on the fraud rationalization factor may be stronger in firms that are more dependent on main-bank borrowing. This study analyzed data from publicly listed firms in Japan for the period between 2008 and 2016 to determine how main-bank relationships affected accounting fraud, thus allowing an assessment of delegated monitoring practices. Findings showed that main-bank relationships were helpful for reducing accounting fraud, suggesting its overall effectiveness in delegated monitoring. Results also showed that large audit firms did not necessarily prevent accounting fraud, which implies that main banks can employ their own monitoring as a substitute for the roles typically played by these firms. Here, the main policy implication is that main-bank relationships may strengthen business ethics in the context of bank-dominated corporate governance. In conclusion, the continued analysis of bank monitoring may benefit stakeholders while strengthening business ethics in bank-centered economies. (shrink)