Using an experiment with corporate financial managers, we find that when red flags are present in the financial statements under their review, managers identify those red flags and, in turn, have greater concerns over earnings quality. In addition, when pressure to meet a financial target is high, managers are more concerned about earnings quality when red flags are present. We also document that when red flags are present, managers are more likely to report both internally to their CEO and, if (...) their concerns are not resolved internally, externally to their auditor. Pressure to meet a financial target increases the likelihood managers report internally, but decreases their likelihood of reporting externally when red flags are present. Additional analyses document reporting differences between CFOs and controllers, and examine the important roles that short-term personal costs, job tenure, and a non-accounting background play in the ethical dilemma managers face when deciding whether to report externally. (shrink)

Archival research reports that managers often use the FIN 48 uncertain tax liability accrual to manage earnings. To assess solutions to this problem, we deconstruct the ethical and psychological reasoning that leads to FIN 48 opportunistic behavior. Hence, we employ a survey of seasoned accounting managers to assess the influences of cynicism, two measures of moral disengagement, and pressure from a CFO on the propensity to engage in FIN 48 earnings management. Specifically, we manipulate the influence of the study scenario (...) supervisory CFO as either a latent bully or a transformational leader. While the CFO bully main effect condition enhances FIN 48 earnings management, the CFO transformational leader condition interacts with less cynical accounting managers to reduce FIN 48 earnings management. We also find that both dispositional trait and situational state moral disengagement factors independently mediate the relationship between the cynicism model antecedent and FIN 48 earnings management. Collectively, study findings provide implications for both theory and practice. (shrink)

Accountants preparing information are in a position to manipulate the view of economic reality presented in such information to interested parties. These manipulations can be regarded as morally reprehensible because they are not fair to users, they involve in an unjust exercise of power, and they tend to weaken the authority of accounting regulators. This paper develops a model for detecting earnings manipulators using financial statements’ ratios in a sample of Spanish listed companies. Our results provide evidence that accounting data (...) can be extremely useful in detecting manipulators. This approach can be used by a large category of users of accounting information among which we can cite stock exchange supervisors or investing professionals. (shrink)

Based on a framework that integrates job demands-resources theory, social cognitive theory Handbook of personality, Guilford Press, New York, pp 154–196, 1999) and regulatory focus theory, the purpose of this research is to investigate the relationship between perceptions of organizational politics and subsequent moral disengagement and unethical behavior. We conducted a laboratory study and also collected data in two separate surveys 6 weeks apart from 206 individuals working full time to investigate the relationships presented in our model. In both studies, (...) we examined the direct relationship of politics perceptions on unethical behavior in organizations as well as the indirect relationship through the influence of moral disengagement. We investigated the moderating effect of regulatory focus on the relationship between moral disengagement and unethical behavior using the survey data. Results indicated that perceptions of politics were significantly related to our mediator, moral disengagement, which was significantly related to our dependent variable, unethical behavior. However, only prevention-focus moderated the relationships examined. Implications for future research and managerial practice are discussed. (shrink)

Moral disengagement was initially conceptualized as a process through which people reconstrue unethical behaviors, with the effect of deactivating self-sanctions and thereby clearing the way for ethical transgressions. Our article challenges how researchers now conceptualize moral disengagement. The current literature is overly liberal, in that it mixes two related but distinct constructs—process moral disengagement and the propensity to morally disengage—creating ambiguity in the findings. It is overly conservative, as it adopts a challengeable classification scheme of “four points in moral self-regulation” (...) and perpetuates defining moral disengagement via a set of eight psychological mechanisms, narrowing our understanding of the phenomenon. To address these problems, we propose to define process moral disengagement intensionally (specifying the necessary and sufficient conditions for correct application of the term) as intrapsychic cognitive reasoning processes through which people selectively reconstrue a moral judgment “behavior B by actor A is morally wrong” and shift it toward becoming “behavior B is not morally wrong” or “actor A is not responsible for behavior B.” This definition achieves disambiguation and increased concept clarity. We leverage the definition to motivate a classification scheme for psychological mechanisms of moral disengagement along two dimensions—reconstruing morality and reconstruing agency—and to initiate an open inventory of psychological mechanisms that specify how process moral disengagement operates. (shrink)

Originally conceptualized by Bandura as the process of cognitive restructuring that allows individuals to disassociate with their internal moral standards and behave unethically without feeling distress, moral disengagement has attracted the attention of management researchers in recent years. An increasing body of research has examined the factors which lead people to morally disengage and its related outcomes in the workplace. However, the conceptualization of moral disengagement, how it should be measured, the manner in which it develops, and its influence on (...) work outcomes are areas of continued debate among researchers. In this article, we undertake a systematic review of research on moral disengagement in the workplace and develop a comprehensive research agenda that highlights opportunities for theoretical and empirical advancement of the literature. (shrink)

Our study examines whether gender-diverse engagement partners constrain unethical earnings management behavior in a French mandatory joint audit setting. The investigation of the joint audit setting, by raising concerns about audit team organization and management, provides new insights into how gender-diverse audit partners contribute to the effectiveness of audit decision-making, resulting in reduced earnings management. The need for effective collaboration and communication between joint auditors may foster a transformational leadership style on the part of audit engagement partners. In this regard, (...) we argue that better interaction between male and female lead audit partners confers a comparative advantage on gender-diverse audit partners compared to all-male audit partners. In line with our expectation, our empirical results show that gender-diverse audit partners are negatively associated with discretionary accruals of client firms. Gender-diverse audit partners are also found to constrain earnings management irrespective of whether clients hire one or two brand-name audit firms. Finally, we find that the pervasiveness of earnings management declines when client firms switch from all-male audit partners to gender-diverse audit partners. Our findings underline the importance of considering audit partner gender by policy makers in contexts where joint audits are required or in countries that are considering introducing joint audits. (shrink)

We examine the influence of face-based judgments of CFO and CEO honesty on earnings management for the largest publicly traded companies in America. After controlling for incentives and opportunities to manage earnings, CFOs perceived to be less honest engage in higher levels of accruals earnings management and real earnings management. The beneficial impact of perceived honesty on earnings quality is most pronounced when both the CFO and the CEO are perceived to be more honest. Findings are consistent with our conjecture (...) that both the CFO and CEO contribute to a firm’s financial reporting environment. (shrink)

Los valores cristianos son ahora más relevantes debido a que las empresas no se preocupan solo del beneficio. mediante una muestra de 176 empresas de la zona 4 de Ecuador, se ha estudiado la aplicación de los valores de solidaridad, honestidad, humildad y responsabilidad en los procesos productivos y de contratación de personal. El objetivo es averiguar si estos valores son relevantes en la gestión. Como resultado se encontró que existen pocas empresas que tengan en cuenta estos valores declarados como (...) tal. La ausencia de estos valores indica que las empresas deben incorporarlos para tener mayor sostenibilidad y responsabilidad social. (shrink)

It has long been recognized that accountants practicing in business settings have a dual role: as employees, they are bound to the organization, and as professionals, they are bound by the profession’s code of ethical conduct : 119–128, 1986). These two roles highlight the need to recognize and consider both the ethical and economic implications of their decisions. Practicing industry accountants are commonly involved in a broad range of their firm’s business practices and decision making, and are increasingly exposed to (...) the commercial aspects of their companies. Also, during their education, they were trained on their professional responsibilities. However, in general, this education was not recent and may not have been reinforced. By contrast, accounting students have been recently and repeatedly exposed to and have knowledge about their professional responsibilities as an accountant, but limited, if any, exposure to the commercial aspects of business. Consequently, our first hypothesis predicts that the ethical sensitivity of practicing industry accountants will be lower than that of accounting students. We find limited support for this hypothesis. Second, we also examine company reward structure and predict that ethical sensitivity will be lower for those in a company with a reward structure narrowly focused only on financial goals as compared to those in a company with a broad reward structure. Third, we predict that the difference in ethical sensitivity levels between those in a company with a narrow reward structure as compared to those in a company with a broad financial reward structure will be higher for practicing industry accountants compared to accounting students. Results from our study generally support these last two predictions. Ethical sensitivity is lower for those in a company with a reward structure narrowly focused only on financial goals as compared to those in a company with a broad reward structure, suggesting that companies may be able to increase ethical awareness in their organizations by including non-financial goals in their reward structures. (shrink)

To address substandard working conditions in global value chains, companies have adopted private regulatory systems governing worker rights. Scholars agree that without onsite factory audits, this private regulation has limited impact at the point of production. Companies, however, audit only a subset of their suppliers, severely restricting their private regulatory attempts. Despite the significance of the placement of suppliers inside or outside firms’ “responsibility boundaries” and despite scholars’ having called for more research into how firms prioritize what suppliers to audit, (...) few, if any, systematic studies have examined the topic. This is problematic, as the placement of firms’ responsibility boundaries determines what suppliers and workers are included in firms’ private regulatory attempts. Based on a study of 12 Swedish firms and the theory of moral disengagement, this paper starts to fill this research gap by exploring how firms’ responsibility boundaries are placed. The paper illustrates how firms’ responsibility boundary placement is best described as a patchwork with firms defining and delimiting their responsibilities differently. The paper also demonstrates that three supplier types are particularly likely to be placed inside firms’ responsibility boundaries, while a fourth type is likely be placed outside. (shrink)