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

Author

Listed:
  • Anna M. Rose

    (University of Waikato)

  • Jacob M. Rose

    (University of Waikato
    Monash University)

  • Ikseon Suh

    (University of Nevada Las Vegas)

  • Jay Thibodeau

    (Bentley University)

  • Kristina Linke

    (University of Groningen)

  • Carolyn Strand Norman

    (Virginia Commonwealth University)

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.

Suggested Citation

  • Anna M. Rose & Jacob M. Rose & Ikseon Suh & Jay Thibodeau & Kristina Linke & Carolyn Strand Norman, 2021. "Why Financial Executives Do Bad Things: The Effects of the Slippery Slope and Tone at the Top on Misreporting Behavior," Journal of Business Ethics, Springer, vol. 174(2), pages 291-309, November.
    • Handle: RePEc:kap:jbuset:v:174:y:2021:i:2:d:10.1007_s10551-020-04609-y
    DOI: 10.1007/s10551-020-04609-y
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    5. Kyriaki Kosmidou & Dimitrios Kousenidis & Anestis Ladas & Christos Negkakis, 2024. "Climate‐related performance and stock price crash risk," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 33(2), pages 113-148, May.

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