Dark Triad Managerial Personality and Financial Reporting Manipulation

Martin Mutschmann (), Tim Hasso () and Matthias Pelster ()
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Martin Mutschmann: Paderborn University, Center for Risk Management
Tim Hasso: Bond University
Matthias Pelster: Paderborn University, Center for Risk Management

Journal of Business Ethics, 2022, vol. 181, issue 3, No 13, 763-788

Abstract: Abstract 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.

Keywords: Financial reporting quality; Fraud; Survey; Managerial style effects; Dark triad; Internal controls (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s10551-021-04959-1

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