Organizational cronyism refers to favoring some employees within an organization based on non-performance-related factors. Although it is highly likely to encounter many attitudes and behaviors meeting this description within public and private institutions, there are limited studies on this issue. Thus, the purpose of this study is to develop a valid and reliable scale to assess the perception of cronyism among organizational members. To this end, an item pool was formed based on current literature as well the views of teachers (...) and expert recommendations. The validity–reliability of the scale was tested via two sample groups. As a result of the study, a scale with 3 dimensions and 15 items as well as psychometric qualities was developed to assess employee perceptions of cronyism. The scale dimensions comprise: in-group bias, paternal cronyism, and reciprocal exchange of favor in accordance with the way the method was addressed in the literature. The analyses of nomological validity of the scale showed that perception of cronyism is an important predictor of trust in managers. (shrink)

For stakeholders, such as investors and lenders, to appropriately assess a company's financial performance, the reported accounting earnings must closely reflect the economic reality of the organization's financial activity throughout the reporting period. The degree to which reported earnings capture economic reality is called earnings quality. Managers have an ethical obligation to report high quality earnings to interested stakeholders in a timely matter. Accounting research has identified conditions within an organization, such as management compensation contracts and pending litigation that can (...) impact earnings quality. We extend this line of research by exploring whether another characteristic of an organization, gender diversity in senior management, influences the quality of reported earnings. Companies with more women in senior management are found to be more profitable and have higher stock returns after initial public offerings than those with fewer women in the management ranks. Our findings suggest that the improved bottom line for companies with more women senior executives is not produced through the management of earnings or lower quality earnings. Instead, earnings quality is positively associated with gender diversity in senior management. (shrink)

How is the (il)legitimacy of manager compensation constructed in social interaction? This study investigated discursive processes through which heavily contested executive pay schemes of the Finnish energy giant Fortum were constructed as (il)legitimate in public during 2005–2009. The critical discursive analysis of media texts identified five legitimation strategies through which politicians, journalists, and other social actors contested these schemes and, at the same time, constructed subject positions for managers, politicians, and citizens. The comparison of two debate periods surrounding the 2007–2008 (...) financial crisis revealed significant differences in the discursive strategies and the corresponding moral struggles linked to legitimation of executive compensation. The analysis highlights a change in moral reasoning by social actors as they adapt their justifications to a changing social context. This study has important implications for our understanding of the ethical aspects and socio-political embeddedness of manager compensation. In particular, it adds to our knowledge of organizational legitimacy by showing how discursive strategies and the corresponding morality constructions used to (de)legitimate business activities can shift quickly as a result of a change in the social and political climate surrounding the legitimation struggle. (shrink)

This research applies the theory of planned behavior to corporate managers’ decision making as it relates to fraudulent financial reporting. Specifically, we conducted two studies to examine the effects of attitude, subjective norm and perceived control on managers’ decisions to violate generally accepted accounting principles (GAAP) in order to meet an earnings target and receive an annual bonus. The results suggest that the theory of planned behavior predicts whether managers’ decisions are ethical or unethical. These findings are relevant to corporate (...) leaders who seek to improve ethical work climates of organizations and to many regulators, accountants, corporate governance officials and investors. (shrink)

We applied a technique borrowed from the field of bioethics to test whether justice-related factors influence laypersons’ decisions concerning business ethics. In the first experiment, participants judged the acceptability of remuneration policies and in the second that of executive bonuses. In each study, participants judged a set of 36 situations. To create the scenarios, we varied retributive justice—the amount of remuneration; procedural justice—the clarity of the procedure that determined the remuneration; distributive justice—the extent of the distribution of bonus payments amongst (...) employees; and restorative justice—a special compensation for hazardous working conditions or accidents at work. K-means clustering of all 36 judgments revealed four different personal positions in both experiments. One group of people readily accepted all situations. The other three groups’ judgments were mainly a function of distributive justice modulated in different ways by the context determined by the other variables. Furthermore, people conceive of distributive justice as categorical: Acceptability judgments only increase if companies give bonuses to all employees. Granting bonuses to a subset does not increase acceptability. Our results are useful for policy makers and provide business ethics researchers with a novel technique. (shrink)

The current literature shows great interest in the issue of gender diversity on boards of directors. Some studies have hypothesized a direct relationship between diversity and the value of the firm, but not many examine the intermediate mechanisms that may exert an influence on such relationships. We employ two stages of GMM estimation methodology to exhibit evidences of the relationship between gender diversity and compensation of top managers in the Spanish context. Results show that gender diversity positively affects the effectiveness (...) of boards—in terms of composition, structure, size and functioning—influencing a proper design of top managers compensation linked to company performance. Evidences suggest that legislative actions aimed at increasing the presence of women on boards of directors are justified not only for ethical reasons, but also for reasons of economic efficiency. (shrink)

We examine the association between gender-diverse compensation committees and CEO pay and find that CEO compensation levels are negatively associated with gender-diversity of the compensation committee, but not gender-diversity of the board. Furthermore, we find that excess CEO compensation is negatively related to subsequent return on assets for firms with an all-male compensation committee but not for firms with a gender-diverse compensation committee. These results suggest that CEOs do receive some level of excess compensation which can be mitigated by having (...) one or more females on the compensation committee. (shrink)

This study explores the rationality behind firms’ decision to admit or deny their involvement in bribery when responding to confidential surveys conducted by international agencies. Specifically, we posit that firms’ reluctance to provide accurate information about their engagement in bribery is at least to some extent contingent on certain situational factors. In other words, we claim that this behavior is context dependent. The paper uses the notions provided by the theory of planned behavior to understand the way in which the (...) corruption of the legal environment, the intensity of market competition, and identification risk influence firms’ decision to lie about their involvement in bribery. To test these notions, we use databases from the fifth wave of the EBRD-World Bank Business Environment and Enterprise Performance Survey, country-level data from the Kauffman Foundation and macroeconomic information from the World Bank database. We run ordinary least squares with geographic region-clustered standard errors on data from 30 countries and 6122 individual firms during the period 2012–2013. Consistent with our expectations, the results indicate that firms operating within more corrupt legal environments, facing more competition, and bearing a higher risk of being identified are less likely to deny their involvement in bribery. We conclude that not all firms have the same incentives to lie about their participation in bribery, and therefore, identifying the drivers of this heterogeneity may help policymakers better assess the reliability of bribery information collected through confidential surveys. (shrink)

In this paper we discuss cronyism that exists between superiors and subordinates. Cronyism is defined as favoritism shown by the superior to his or her subordinate based on their relationship, rather than the latter's capability or qualification, in exchange for the latter's personal loyalty. We argue that two cultural antecedents, namely particularism and paternalism, give rise to strong ingroup bias and unreserved personal loyalty, which in turn lead to cronyism. We examine the consequences of cronyism at the individual level with (...) respect to job satisfaction, organizational commitment, and ingratiation. We also discuss how cronyism affects performance, morale, and inertia at the organizational level. Cronyism can be observed in all cultures; however, its manifestation is likely to vary from one culture to another. (shrink)

This article explores the relevance of the Theory of Planned Behavior to whistleblowing research, and considers whether its widely tested validity as a model of the link between attitudes, intention, and behavior might make it an appropriate candidate for a general theory to account for whistleblowing. This proposition is developed through an empirical test of the theory's predictive validity for whistleblowing intentions. Using a sample of 296 Korean police officers, the analysis showed that attitude, subjective norm, and perceived behavioral control (...) all had significantly positive main effects on internal whistleblowing intentions, but for external whistleblowing intentions only subjective norm was significant. The implications of these findings for applying the Theory of Planned Behavior to whistleblowing research are discussed. (shrink)

Although we can observe noticeable progress in gender diversity on corporate boards, these boards remain far from gender balanced. Our paper builds on social identity theory to examine the impact of corporate elites—men and women who sit on multiple corporate boards—on board diversity. We extend the main argument of social identity theory concerning favouritism based on homophily by suggesting that boards with men with multiple appointments are unwilling to include female board members to protect the monopoly value generated by their (...) elite status. The empirical analysis, based on DAX 30 firms in the period of 2010–2015, shows that the presence of multi-board men is negatively associated with women’s participation, while the presence of multi-board women and other women on management boards is positively related to gender diversity on boards. Furthermore, robustness tests support and confirm our conclusion that multi-board men have a significant association with board diversity, even with small size. Additionally, we find a significant effect arising from pressure related to the introduction of gender quotas in Germany, effective in 2016, indicating the effectiveness of gender quota policies for board gender diversity. (shrink)

While numerous studies have examined the impact that powerful CEOs have on their compensation and overall firm decisions, relatively little is known about how powerful CFOs influence their compensation and important firm financial reporting and operational outcomes. This is somewhat surprising given the critical role CFOs play in the financial reporting process of a firm. Using managerial power theory and the theory of power and self-focus :635–658, 2013), we predict that powerful CFOs employ a two-part strategy to camouflage excessive incentive (...) compensation above what efficient contracting would dictate. First, powerful CFOs use their power and influence to negotiate shorter incentive pay duration to maximize the present value of their performance—based compensation. Second, when their incentive equity compensation vests, we suggest that CFOs manage earnings to further enhance their personal income. Consistent with our theoretical expectations, we find higher levels of income-increasing accrual-based earnings management and real transactions management, a potentially unethical practice, in firms with powerful CFOs who have short pay durations. We discuss the implications of our analysis in the context of mitigating CFO power and managing the ethical environment “tone at the top.”. (shrink)

Based on evidence from press articles covering 39 corporate fraud cases that went public during the period 1992-2005, the objective of this article is to examine the role of managers' behavior in the commitment of the fraud. This study integrates the fraud triangle (FT) and the theory of planned behavior (TPB) to gain a better understanding of fraud cases. The results of the analysis suggest that personality traits appear to be a major fraud-risk factor. The analysis was further validated through (...) a quantitative analysis of keywords which confirmed that keywords associated with the attitudes/rationalizations component of the integrated theory were predominately found in fraud firms as opposed to a sample of control firms. The results of the study suggest that auditors should evaluate the ethics of management through the components of the TPB: the assessment of attitude, subjective norms, perceived behavioral control and moral obligation. Therefore, it is potentially important that the professional standards that are related to fraud detection strengthen the emphasis on managers' behavior that may be associated with unethical behavior. (shrink)

This study examines determinants of chairman compensation in a supervisory board setting and, specifically, the relationship between chairman and CEO compensation. Using a sample of publicly listed firms in Sweden, the study indicates that chairman compensation—despite its fixed nature—is reflective of firm performance via a positive relationship to CEO compensation. As CEO compensation is set before chairman compensation, we argue that the chairman may be inclined to conspire with the CEO in earnings management efforts at the expense of monitoring on (...) behalf of investors. Supporting our cronyism argument, we find evidence that the gap between chairman and CEO compensation is less at firms where the chairman had previously served in the executive management team. The close ties between the chairman and CEO compensation add to the understanding of the relative success of the managerial power theory versus the agency theory in explaining CEO compensation. (shrink)

The aim of this study is to gain an understanding of why employees misuse information systems resources in the workplace. Rather than consider “intention,” as existing behavioral research commonly does, this study investigates actual behavior and employs IS resource misuse as the dependent variable. Data from a web-based survey are analyzed using the partial least squares approach. In light of the dual-process approach and the theory of planned behavior, the findings suggest that IS resource misuse may be both an intentional (...) type of behavior and an unreasoned action. Perceived behavioral control influences employees’ IS resource misuse actions via their desires or intentions, whereas attitude toward such misuse affects these actions via employees’ desires alone. Subjective norm is found not to affect employees’ IS resource misuse via either desires or intentions. In terms of its theoretical contribution, this study considers unethical behavior in information systems by incorporating a dual-process model and the theory of planned behavior. With regard to its managerial significance, the study’s results will help managers to better understand why employees commit IS resource misuse within organizations. (shrink)