Unethical and Fraudulent Financial Reporting: Applying the Theory of Planned Behavior

Abstract

This research applies the theory of planned behavior to corporate managers’ decision making as it relates to fraudulent financial reporting. Specifically, we conducted two studies to examine the effects of attitude, subjective norm and perceived control on managers’ decisions to violate generally accepted accounting principles (GAAP) in order to meet an earnings target and receive an annual bonus. The results suggest that the theory of planned behavior predicts whether managers’ decisions are ethical or unethical. These findings are relevant to corporate leaders who seek to improve ethical work climates of organizations and to many regulators, accountants, corporate governance officials and investors.