The Effects of Social Pressure, Organizational Risk Appetite, and Honesty-Humility on Financial Reporting Decisions

Abstract

This study investigates the impact of an organization’s risk appetite, social pressure and the behavioral trait of Honestly-Humility on management accountants’ financial reporting decisions regarding a missing fixed asset. The results of an experiment with 72 management accountants suggest that risk appetite sets the stage for how social pressures impact misreporting intentions. We find that an organization’s risk appetite (aggressive vs. conservative) and social pressure (obedience vs. conformity pressure) interact to effect reporting intentions. More specifically, misreporting intentions significantly increase when either obedience or conformity pressure is introduced in the aggressive risk appetite condition. However, in the conservative risk appetite condition, misreporting intentions only increase significantly upon the introduction of obedience pressure. As well, we find that a conservative risk environment activates higher levels of Honesty-Humility to reduce the likelihood of misreporting.We also find that Honesty-Humility is a behavioral trait that significantly impacts misreporting intentions, such that management accountants with higher HonestyHumility scores are less likely to engage in fraudulent financial reporting despite the presence of social pressures to engage in misreporting. Data Availability: The data used in this study are available upon request from the authors.