Dark Tetrad personality and earnings management: the moderating effect of corporate reputation
DOI:
https://doi.org/10.14392/asaa.2024170209Keywords:
Earnings management, Dark Tetrad Personality, Corporate ReputationAbstract
Objective: The purpose of this study is to investigate the moderating effect of corporate reputation on the relationship between the Dark Tetrad personality and earnings management.
Method: Two approaches were adopted: one archival and one experimental. In the archival approach, 434 firms (2,645 observations) headquartered in the US were analyzed, covering the period 2010-2017. Earnings management was proxied by accruals quality, reputation was proxied by the score on the ranking of the World’s Most Admired Companies, and Dark Tetrad personality was based on CEO speech and ‘Big Five’ personality analysis. In the experimental approach, we used a 2x2 between-subjects design on a sample of 242 MBA students, most of whom had a background in management. The Dark Tetrad personality was measured with the Short Dark Triad form (Paulhus & Jones, 2014) and the Assessment of Sadistic Personality (Plouffe et al., 2017). For reputation, we adapted the scenarios of Goldberg (1990) and Lafferty (2007). Participants were asked to make five accounting decisions to gauge their disposition to commit fraud.
Results: The results confirmed that CEO personality affects earnings management and showed that a good corporate reputation reduces the likelihood of earnings management and fraud, thereby preserving accounting information quality.
Contributions: Among the practical contributions for auditors and investors, this study expands Upper Echelons Theory by including and associating dark personality traits with greater risk of earnings management and fraud.
Downloads
References
Agarwal, V., Taffler, R., & Brown, M. (2011). Is management quality value relevant? Journal of Business Finance & Accounting, 38(9‐10), 1184-1208. DOI: 10.1111/j.1468-5957.2011.02267.x.
Amos, B., Longpré, N., & Roos, M. D. (2022) The Dark Triad of Personality: Attitudes and Beliefs Towards White-Collar Crime. Journal of White Collar and Corporate Crime, 5(1), 58-73. DOI: 10.117/2631309X221120002
Babiak, P., Neumann, C. S., & Hare, R. D. (2010). Corporate psychopathy: Talking the walk. Behavioral Sciences & The Law, 28(2), 174-193. DOI: 10.1002/bsl.925.
Bergh, D. D., Ketchen, D. J. Jr., Boyd, B. K. & Bergh, J. (2010). New frontiers of the reputation - performance relationship: Insights from multiple theories. Journal of Management, 36(3), 620-632. DOI: 10.1177/0149206309355320.
Blair, C. A., Blair, C. A., Helland, K., Helland, K., Walton, B., & Walton, B. (2017). Leaders behaving badly: the relationship between narcissism and unethical leadership. Leadership & Organization Development Journal, 38(2), 333-346. DOI: 10.1108/LODJ-09-2015-0209.
Bonner, S. E., Palmrose, Z. V., & Young, S. M. (1998). Fraud type and auditor litigation: An analysis of SEC accounting and auditing enforcement releases. The Accounting Review, 73(4), 503-532.
Book, A., Visser, B. A., Blais, J., Hosker-Field, A., Methot-Jones, T., Gauthier, N. Y., Volk, A., Holden, R.R., & D'Agata, M. T. (2016). Unpacking more “evil”: What is at the core of the Dark Tetrad? Personality and Individual Differences, 90, 269-272. DOI: 10.1016/j.paid.2015.11.009.
Buckels, E. E., Jones, D. N., & Paulhus, D. L. (2013). Behavioral confirmation of everyday sadism. Psychological Science, 24(11), 2201-2209. DOI: 10.1177/0956797613490749.
Cao, Y., Myers, L. A., & Omer, T. C. (2012). Does company reputation matter for financial reporting quality? Evidence from restatements. Contemporary Accounting Research, 29(3), 956-990. DOI: 10.1111/j.1911-3846.2011.01137.x.
Chatterjee, A., & Hambrick, D. C. (2011). Executive Personality, Capability Cues, and Risk Taking: How Narcissistic CEOs React to Their Successes and Stumbles. Administrative Science Quarterly, 56(2), 202-237. DOI: 10.1177/0001839211427534
Chen, S. (2010). The role of ethical leadership versus institutional constraints: A simulation study of financial misreporting by CEOs. Journal of Business Ethics, 93(1), 33-52. DOI: 10.1007/s10551-010-0625-8.
Clor-Proell, S., Mackenzie, N., Rennekamp, K., & Rupar, K. (2023). Invest in what you know? How customer investors react to corporate restatements. Accounting, Organization and Society, 111. DOI: 10.1016/j.aos.2023.101496
Cohen, D. A., Dey, A., & Lys, T. Z. (2008). Real and accrual‐based earnings management in the pre‐ and post‐Sarbanes-Oxley periods. The Accounting Review, 83(3), 757-787. DOI: 10.2308/accr.2008.83.3.757.
Cragun, O. R., Olsen, K. J., & Wright, P. M. (2020). Making CEO Narcissism Research Great: A Review and Meta-Analysis of CEO Narcissism. Journal of Management, 46(6), 908-936. DOI: doi.org/10.1177/0149206319892678
Craig, R., & Amernic, J. (2011). Detecting linguistic traces of destructive narcissism at-a-distance in a CEO’s letter to shareholders. Journal of Business Ethics, 101(4), 563-575. DOI: 10.1007/s10551-011-0738-8.
Dechow, P. M., Ge, W., & Schrand, C. M. (2010). Understanding earnings quality: a review of the proxies, their determinants and their consequences. Journal of Accounting and Economics, 50(2-3), 344-401. DOI: 10.1016/j.jacceco.2010.09.001.
Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review, 70(2), 193–225.
Desai, H., Hogan, C. E., & Wilkins, M. S. (2006). The reputational penalty for aggressive accounting: Earnings restatements and management turnover. The Accounting Review, 81(1), 83-112. DOI: 10.2308/accr.2006.81.1.83.
D’Souza, M. F., & Lima, G. A. S. F. (2015). The dark side of power: The Dark Triad in opportunistic decision-making. Advances in Scientific and Applied Accounting, 8(2), 135-156. DOI: 10.14392/ASAA.2015080201.
D’Souza, M. F., & Lima, G. A. S. F. (2019). A look at the traits of dark triad and the cultural values of accounting students. Advances in Scientific and Applied Accounting, 12(1), 161-183. DOI: 10.14392/ASAA.2015080201.
Francis, J. R., & Wang, D. (2008). The joint effect of investor protection and Big 4 audits on earnings quality around the world. Contemporary Accounting Research, 25(1), 157-191. DOI: 10.1506/car.25.1.6.
Garrett, J., Hoitash, R., & Prawitt, D. F. (2014). Trust and financial reporting quality. Journal of Accounting Research, 52(5), 1087-1125. DOI: 10.1111/1475-679X.12063.
Geel, M., van Goemans, A., Toprak, F., & Vedder, P. (2017). Which personality traits are related to traditional bullying and cyberbullying? A study with the Big Five, Dark Triad and sadism. Personality and Individual Differences, 106, 231–235. DOI: 10.1016/j.paid.2016.10.063
Góis, A. D. (2017). The dark tetrad of personality and the accounting information quality: the moderating effect of corporate reputation. (Tese de Doutorado, Universidade de São Paulo, São Paulo, Brasil). DOI: 10.11606/T.12.2018.tde-22022018-171814
Goldberg, L. R. (1990). An alternative" description of personality": The big-five factor structure. Journal of Personality and Social Psychology, 59(6), 1216-1229.
Gómez-Leal, R., Fernández-Berrocal, P., Gutiérrez-Cobo, M.J., Cabello, R., & Megías-Robles, A. (2024). The Dark Tetrad: analysis of profiles and relationship with the Big Five personality factors. Scientific Reports, 14, 4443. DOI: 10.1038/s41598-024-55074-w
Greitemeyer, T., & Sagioglou, C. (2017). The longitudinal relationship between everyday sadism and the amount of violent video game play. Personality and Individual Differences, 104, 238-242. DOI: 10.1016/j.paid.2016.08.021.
Hambrick, D. C.; Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. The Academy of Management Review, 9(2), 193-206. DOI: 10.5465/amr.1984.4277628.
Harris, L. L., Jackson, S. B., Owens, J., & Seybert, N. (2022). Recruiting Dark Personalities for Earnings Management. Journal of Business Ethics, 178, 193–218. DOI: doi.org/10.1007/s10551-021-04761-z
Harrison, A., Summers, J., & Mennecke, B. (2016). The effects of the dark triad on unethical behavior. Journal of Business Ethics, 1-25. DOI: 10.1007/s10551-016-3368-3.
Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting horizons, 13(4), 365-383. DOI: 10.2308/acch.1999.13.4.365.
Hiebl, M. R. (2014). Upper echelons theory in management accounting and control research. Journal of Management Control, 24(3), 223-240. DOI: 10.1007/s00187-013-0183-1.
Hofstede, G. (2011). Dimensionalizing cultures: The Hofstede model in context. Online Readings in Psychology and Culture, 2(1), 2-26. DOI: 10.9707/2307-0919.1014.
Hou, Z., Fairchild, R., & Perotti, P. CEO Narcissism and Credit Ratings. (2024) Journal of Business Ethics. Advance online publication. DOI: 10.1007/s10551-024-05691-2
Hrazdil, K., Novak, J., Rogo, R., Wiedman, C. I., & Zhang, R. (2018). Measuring CEO Personality Using Machine-Learning Algorithms: A Study of CEO Risk Tolerance and Audit Fees. Working Paper, Kelley School of Business Research Paper. DOI: 10.2139/ssrn.3101500.
Hsieh, T. S., Bedard, J. C., & Johnstone, K. M. (2014). CEO overconfidence and earnings management during shifting regulatory regimes. Journal of Business Finance & Accounting, 41(9-10), 1243-1268. DOI: 10.1111/jbfa.12089.
Johnson, E. N., Kuhn Jr, J. R., Apostolou, B. A., & Hassell, J. M. (2013). Auditor perceptions of client narcissism as a fraud attitude risk factor. AUDITING: A Journal of Practice & Theory, 32(1), 203-219. DOI: 10.2308/ajpt-50329.
Johnson, W. C., Xie, W., & Yi, S. (2014). Corporate fraud and the value of reputations in the product market. Journal of Corporate Finance, 25, 16-39. DOI: 10.1016/j.jcorpfin.2013.10.005.
Jones, D. N. (2014). Risk in the face of retribution: Psychopathic individuals persist in financial misbehavior among the Dark Triad. Personality and Individual Differences, 67, 109-113. DOI: 10.1016/j.paid.2014.01.030.
Jones, D. N., & Figueredo, A. J. (2013). The core of darkness: Uncovering the heart of the Dark Triad. European Journal of Personality, 27(6), 521-531. DOI: 10.1002/per.1893.
Jones, D. N., & Paulhus, D. L. (2014). Introducing the short dark triad (SD3) a brief measure of dark personality traits. Assessment, 21(1), 28-41. DOI: 10.1177/1073191113514105.
Jones, M. J. (2011). The creative accounting and fraud environment. In M. J. Jones (ed.) Creative accounting, fraud and international accounting scandals. (ed). Hoboken: John Wiley & Sons Inc. 21-29.
Kaplan, S. E., McElroy, J. C., Ravenscroft, S. P., & Shrader, C. B. (2007). Moral judgment and causal attributions: Consequences of engaging in earnings management. Journal of Business Ethics, 74(2), 149-164. DOI: 10.1007/s10551-006-9226-y.
Kim, Y., Park, M. S., & Wier, B. (2012). Is earnings quality associated with corporate social responsibility? The Accounting Review, 87(3), 761-796. DOI: 10.2308/accr-10209.
Lafferty, B. A. (2007). The relevance of fit in a cause–brand alliance when consumers evaluate corporate credibility. Journal of Business Research, 60(5), 447-453. DOI: 10.1016/j.jbusres.2006.09.030.
Leuz, C., Nanda, D., & Wysocki, P. (2003). Earnings management and investor protection: an international comparison. Journal of Financial Economics, 69, 505–527. DOI: 1016/S0304-405X(03)00121-1.
Li, H. (2010). Reputation, accounting information and debt contracts in Chinese family firms. China Journal of Accounting Research, 3(1), 95-129. DOI: 10.1016/S1755-3091(13)60021-0.
Lo, K. (2008). Earnings management and earnings quality. Journal of Accounting and Economics, 45(2), 350-357. DOI: 10.1016/j.jacceco.2007.08.002.
Love, E. G., Lim, J., & Bednar, M. (2017). The face of the firm: The influence of CEOs on corporate reputation. Academy of Management Journal, 60(4), 1462-1481. DOI: 10.5465/amj.2014.0862.
Luchs, C., Stuebs, M., & Sun, L. (2009). Corporate reputation and earnings quality. The Journal of Applied Business Research, 25(4), 47-54. DOI: 10.19030/jabr.v25i4.1016.
Majors, T. M. (2015). The interaction of communicating measurement uncertainty and the dark triad on managers' reporting decisions. The Accounting Review, 91(3), 973-992. DOI: 10.2308/accr-51276.
Murphy, P. R. (2012). Attitude, Machiavellianism and the rationalization of misreporting. Accounting, Organizations and Society, 37(4), 242-259. DOI: 10.1016/j.aos.2012.04.002.
Nottar, D. I. S., Schiavo, P. S., Vesco, D. G D., & Santos, C. A. (2022). The effect of the dark triad traits on the relationship between obedience pressure and budgetary slack. Rev. Contabilidade e Finanças, 33(90). DOI: 10.1590/1808-057x20211455.en
O'Boyle, E. H., Forsyth, D. R., Banks, G. C., Story, P. A., & White, C. D. (2015). A meta‐analytic test of redundancy and relative importance of the dark triad and five‐factor model of personality. Journal of Personality, 83(6), 644-664. DOI: 10.1111/jopy.12126.
Olsen, K. J., Dworkis, K. K., & Young, S. M. (2014). CEO Narcissism and Accounting: A picture of profits. Journal of Management Accounting Research, 26(2), 243-267. DOI: 10.2308/jmar-50638.
Paulhus, D. L. (2014). Toward a taxonomy of dark personalities. Current Directions in Psychological Science, 23(6), 421-426. DOI: 10.1177/0963721414547737.
Paulhus, D. L., Buckels, E. E., Trapnell, P. D., & Jones, D. N. (2021). Screening for Dark Personalities: The short Dark Tetrad (SD4). European Journal of Psychological Assessment, 37(3), 208–222. DOI: 10.1027/1015-5759/a000602
Paulhus, D. L., & Jones, D. N. (2014). Measuring dark personalities. In: G. J. Boyle, D. H. Saklofske and G. Matthews (Eds.), Measures of personality and social psychological constructs. San Diego, CA: Academic Press.
Paulhus, D. L., & Williams, K. M. (2002). The dark triad of personality: Narcissism, Machiavellianism, and psychopathy. Journal of Research in Personality, 36(6), 556-563. DOI: 10.1016/S0092-6566(02)00505-6.
Peasnell, K. V., Pope, P. F., & Young, S. (2000). Accrual management to meet earnings targets: UK evidence pre- and post-Cadbury. British Accounting Review, 32(4), 415-445. DOI: 10.1006/bare.2000.0134.
Plouffe, R. A., Saklofske, D. H., & Smith, M. M. (2017). The Assessment of Sadistic Personality: Preliminary psychometric evidence for a new measure. Personality and Individual Differences, 104, 166-171. DOI: 10.1016/j.paid.2016.07.043.
Rijsenbilt, A., & Commandeur, H. (2013). Narcissus enters the courtroom: CEO narcissism and fraud. Journal of Business Ethics, 117(2), 413-429. DOI: 10.1007/s10551-012-1528-7.
Roberts, P. W., & Dowling, G. R. (2002). Corporate reputation and sustained superior financial performance. Strategic Management Journal, 23(12), 1.077-1.093. DOI: 10.1002/smj.274.
Shafer, W. E. & Wang, Z. (2011). Effects of ethical context and Machiavellianism on attitudes toward earnings management in China. Managerial auditing journal, 26(5), 372- 392. DOI: 10.1108/02686901111129553.
Stolowy, H., & Breton, G. (2004). Accounts manipulation: A literature review and proposed conceptual framework. Review of Accounting and Finance, 3(1), 5-92. DOI: 10.1108/eb043395.
Ten Brinke, L., Porter, S., Korva, N., Fowler, K., Lilienfeld, S. O., & Patrick, C. J. (2017). An examination of the communication styles associated with psychopathy and their influence on observer impressions. Journal of Nonverbal Behavior, 41(3), 269-287. DOI: 10.1007/s10919-017-0252-5.
Tian, Y., Ang, J. S., Fu, P., & Ma, C. (2024) Does social trust mitigate insiders’ opportunistic behaviors? Evidence from insider trading. Global Finance Journal, 59, March. DOI: 10.1016/j.gfj.2023.100907
Veh, A., Göbel, M. & Vogel, R. (2019). Corporate reputation in management research: a review of the literature and assessment of the concept. Business Research, 12, 315–353. DOI: doi.org/10.1007/s40685-018-0080-4
Vize, C. E., Lynam, D. R., Collison, K. L., & Miller, J. D. (2018). The "core" of the Dark Triad: A test of competing hypotheses. Personality and Individual Differences, 120, 11–15. DOI: https://doi.org/10.1016/j.paid.2017.08.005
Yamak, S., Nielsen, S., & Escribá-Esteve, A. (2014). The role of external environment in upper echelons theory: A review of existing literature and future research directions. Group & Organization Management, 39(1), 69-101. DOI: 10.1177/1059601113511663.
Zakerian, M., Nakhae, H., & Salehi, M. (2021). The Relationship between Corporate Reputation and Different Types of Earnings Management. Iranian Journal of Finance, 5(1), 1-30. DOI: 10.30699/ijf.2021.123038
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Alan Diógenes Góis, Gerlando Augusto Sampaio Franco de Lima, Márcia Martins Mendes De Luca, Giorgio Gotti
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Copyright for articles published in the ASAA Journal is held by the author, with first publication rights to the journal. By virtue of appearing in this publicly accessible journal, the articles are free to use, with their own attributions, in educational and non-commercial applications. The ASAA Journal will allow the use of published works for non-commercial purposes, including the right to submit the work to publicly accessible databases. Published articles are the authors' full and exclusive responsibility. There are no submission/publishing charges or fees for processing articles (APC).
