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Published in: Journal of Business Ethics 1/2022

02-03-2021 | Original Paper

Recruiting Dark Personalities for Earnings Management

Authors: Ling L. Harris, Scott B. Jackson, Joel Owens, Nicholas Seybert

Published in: Journal of Business Ethics | Issue 1/2022

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Abstract

Prior research indicates that managers’ dark personality traits increase their tendency to engage in disruptive and unethical organizational behaviors including accounting earnings management. Other research suggests that the prevalence of dark personalities in management may represent an accidental byproduct of selecting managers with accompanying desirable attributes that fit the stereotype of a “strong leader.” Our paper posits that organizations may hire some managers who have dark personality traits because their willingness to push ethical boundaries aligns with organizational objectives, particularly in the accounting context where ethical considerations are especially important. Using several validation studies and experiments, we find that experienced executives and recruiting professionals favor hiring a candidate with dark personality traits into an accounting management position over an otherwise better-qualified candidate when the hiring organization faces pressure to manage earnings. Our results help to illuminate why individuals with dark personality traits may effectively compete for high-level accounting positions.

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Appendix
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Footnotes
1
Our research instruments vary whether the job candidates are referred to as Candidate A or Candidate B (see “Instrument Validation Studies” section). For expositional simplicity, we refer to the job candidate who has more dark personality traits as Candidate A and the job candidate who has fewer dark personality traits as Candidate B.
 
2
As we discuss later, the role of the chosen candidate in the organization does not extend beyond the accounting function. As a result, the perceived capability of a job candidate to engage in business activities that create firm value are only relevant insofar as those capabilities translate into managing the accounting function.
 
3
Examples of earnings-related objectives include, but are not limited to, avoiding negative earnings surprises (Brown and Caylor 2005), avoiding losses and earnings decreases (Burgstahler and Dichev 1997), and reporting smooth earnings (Graham et al. 2005).
 
4
Participants in our second validation study rate Candidate A as worse at managing people, managing the work environment, work habits, and interpersonal traits. Although our particular personality profile appears to convey negative information about Candidate A’s overall managerial qualities, our studies cannot rule out that some leaders with dark personalities have other desirable attributes in certain organizational contexts.
 
5
See, for example, the websites of two large executive recruitment firms—Lucas Group and Korn Ferry International. Lucas Group states that “Our detailed interviewing process enables Lucas Group’s HR recruiters to precisely match qualifications, cultural fit and long-term compatibility, and they ensure lasting and successful placements…” Korn Ferry states that “…behavior-based approaches to interviewing consistently lead to better results in identifying the right talent for the job.”
 
6
An alternative approach would be to overtly state that the job candidate does or does not manage earnings. This approach seems problematic because there is no evidence that job candidates and employers talk about earnings management in such an overt way.
 
7
We use this same database in Instrument Validation Study A and Experiment 1, each time randomly selecting a new, non-overlapping sample of business professionals.
 
8
The demographics for participants in this instrument validation study are very similar to those in Experiment 1 (see Table 2 for Experiment 1 demographics). For brevity, we do not tabulate demographic information for Instrument Validation Study A.
 
9
The instrument informs participants that as part of the company’s employment application process, each candidate was required to complete a personality assessment questionnaire designed to elicit the behaviors, beliefs, and values that the job candidate is most likely to exhibit on the job.
 
10
In our Instrument Validation Studies and Experiments 1 and 2, participants view the job candidate personality profiles side-by-side. When presenting the profiles, we vary the order in which they are presented. For half of the participants, the candidate with more dark personality traits is presented in the first column and the other candidate is presented in the second column (and vice-versa). The first candidate is always labeled Candidate A and the second candidate is always labeled Candidate B. There are no order effects in any study (all p > 0.20).
 
11
The concept of a response rate is not relevant in this study. We sought 100 participants and once that threshold number of participants was met, the study was closed. There was one individual who requested payment but did not complete the study, which is why the study has 99 qualified participants rather than 100.
 
12
The financial objectives presented to participants are common objectives of public companies, which may create pressure to manage earnings (Graham et al. 2005).
 
13
These questions did not specify whether “courses” refers to college courses or continuing professional education courses. These means may be lower if the questions specified formal college courses.
 
14
It is noteworthy that these financial objectives are neither extreme nor stylized. Rather, they are drawn from prior research documenting earnings-related pressures experienced by managers of many companies (e.g., Burgstahler and Dichev 1997, Brown and Caylor 2005, Graham et al. 2005). Presenting participants with an ecologically valid set of financial objectives improves the external validity of this experiment.
 
15
We could have fully crossed organizational type and financial objectives in a 2 × 2 design (instead of identifying the two cells in the 2 × 2 design that allow us to most efficiently test our hypothesis). We chose not to pursue a 2 × 2 design for two reasons. First, the two organizational types (for-profit and non-profit) are paired with appropriate financial objectives in the two cells we consider. If we used a 2 × 2 design we would have to, for example, pair a non-profit organization with for-profit financial objectives and vice-versa, which would reduce the ecological validity of our manipulations. Second, we would have to populate twice the number of cells with highly experienced practicing managers, which are generally difficult participants to recruit.
 
16
Research by Chen (2016) and Yetman and Yetman (2012, 2013) suggests that non-profit entities face some pressure to manage financial reports. As a result, it is possible that there may be no difference in hiring decisions between the for-profit public company condition and the non-profit foundation condition. At the same time, there is no indication in the extant literature that the intensity of pressure to manage financial reports in the non-profit sector matches the intensity of the pressure to manage financial reports in the for-profit sector.
 
17
Efforts to equalize education and work experience between the job candidates were extensive. Both candidates (1) worked at a Big 4 accounting firm, (2) achieved the rank of manager, and (3) have undergraduate and graduate degrees in accounting from respected public universities. Participants also respond to a series of salience checks which take the form of true/false questions. For example, one true/false question states that “Both candidates received excellent recommendations from previous employers” while another question states that “Both candidates possess similar qualifications for the senior accounting manager position.” Participants correctly respond to the salience check questions between 85 and 100% of the time. The inferences and conclusions of this experiment are unaffected by removing participants who missed salience checks.
 
18
For all of the questions using the 100-point sliding scale, the slider starts at the midpoint of the scale. Participants must move the slider in either direction to continue. Once the slider is moved in either direction, the midpoint of the scale cannot be selected. Participants do not see numerical values on the scale, but we translate their scale position to a numerical value between 1 and 100, inclusive. In the instructions, participants are informed that moving the slider closer to one end of the scale or the other indicates the strength of their response.
 
19
Participants may respond to questions in ways that they believe are “correct” or socially acceptable (Fisher 1993). Social desirability bias may influence variable means and relationships among variables (Zerbe and Paulhus 1987). However, indirect questioning may reduce the effect of social desirability bias (Fisher 1993). Thus, we phrase the candidate selection question using indirect questioning.
 
20
All hypothesized statistical tests, as indicated in our main tables, are reported with one-tailed p values.
 
21
The concept of a response rate is not relevant in this experiment. We sought 110 participants and once that threshold number of participants was met, the experiment was closed.
 
22
Responses are provided on a 10-point scale with higher responses indicating greater familiarity.
 
23
We have one manipulation check, and 97 percent of our participants respond to it correctly.
 
24
The job candidate profiles are amalgamations of different personality traits as shown in Appendix A. On the surface, one might speculate that a single trait could be a dominant consideration when making an employee selection or referral decision. To address this issue, we ask participants in Experiment 3 whether they considered the candidate’s overall personality profile or they considered only a specific personality trait. Only four of the 41 participants indicated that they focused on a specific personality trait.
 
25
We have a single manipulation check question that has three parts, each of which focuses on a different dimension of the job candidate’s personality. Approximately 85 percent of our participants characterize the job candidate’s personality in a manner consistent with the intended message of the personality profile.
 
26
The two job candidates are both perceived to be qualified for a senior accounting manager position, but they are very different in terms of their personalities (see “Instrument Validation Studies” section). At the same time, both of the candidates are reasonable representations of job candidates who might pursue a senior accounting manager position. One of the post-experimental questions asks participants in Experiment 3 to indicate whether someone like the job candidate described would actually apply for a senior accounting manager position. Participants respond on a 10-point scale with the left endpoint labeled “Definitely not” and the right endpoint labeled “Definitely yes.” The mean response for Candidate A is 8.29 and the mean response for Candidate B is 8.81. Thus, while we have created job candidates whose personality profiles seem very different, they are not extreme in terms of the types of individuals who might pursue a senior accounting manager position.
 
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Metadata
Title
Recruiting Dark Personalities for Earnings Management
Authors
Ling L. Harris
Scott B. Jackson
Joel Owens
Nicholas Seybert
Publication date
02-03-2021
Publisher
Springer Netherlands
Published in
Journal of Business Ethics / Issue 1/2022
Print ISSN: 0167-4544
Electronic ISSN: 1573-0697
DOI
https://doi.org/10.1007/s10551-021-04761-z

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