Dark Triad Managerial Personality and Financial Reporting Manipulation

Abstract

We investigate the relationship between dark triad personality traits (Machiavellian-ism, narcissism, and psychopathy) of managers and 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) that traditional risk management mechanisms are only partially effective in mitigating this effect. Internal audits are only effective in curtailing the negative behavior of dark triad managers if these internal audits are performed by independent external personnel, but not if they are conducted by internal personnel. This suggests that dark triad managers are able to manipulate other employees quite effectively. Consequently, having external personnel performing the 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.