Why Financial Executives Do Bad Things: The Effects of the Slippery Slope and Tone at the Top on Misreporting Behavior

Anna M. Rose (), Jacob M. Rose (), Ikseon Suh (), Jay Thibodeau (), Kristina Linke () and Carolyn Strand Norman ()
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Anna M. Rose: University of Waikato
Jacob M. Rose: University of Waikato
Ikseon Suh: University of Nevada Las Vegas
Jay Thibodeau: Bentley University
Kristina Linke: University of Groningen
Carolyn Strand Norman: Virginia Commonwealth University

Journal of Business Ethics, 2021, vol. 174, issue 2, No 4, 309 pages

Abstract: Abstract This paper employs theory of normal organizational wrongdoing and investigates the joint effects of management tone and the slippery slope on financial reporting misbehavior. In Study 1, we investigate assumptions about the effects of sliding down the slippery slope and tone at the top on financial executives’ decisions to misreport earnings. Results of Study 1 indicate that executives are willing to engage in misreporting behavior when there is a positive tone set by the Chief Financial Officer (CFO) (kind attitude toward employees and non-aggressive attitude about earnings), regardless of the presence or absence of a slippery slope. A negative tone set by the CFO does not facilitate the transition from minor indiscretions to financial misreporting. In Study 2, we find that auditors evaluating executives’ decisions under the same conditions as those in Study 1 do not react to the slippery slope condition, but auditors assess higher risks of fraud when the CFO sets a negative tone. Overall, our results indicate that many assumptions about the slippery slope and tone at the top should be questioned. We provide evidence that pro-organizational behaviors and incrementalism yield new insights into the causes of ethical failures, financial misreporting behavior, and failures of corporate governance mechanisms.

Keywords: Fraud; Misreporting; Slippery slope; Tone at the top (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10551-020-04609-y

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