Negativity Bias in Investors’ Reactions to Board of Directors’ Risk Oversight Disclosure

This study investigates how disclosure of the board of directors’ leadership and role in risk oversight (BODs oversight disclosure) influences investors’ judgments when information on risk exposures is disclosed. The theoretical lens through which we examine this issue involves negativity bias. Sixty-two stock market investors who engage in the evaluation and/or investment of stocks on a regular or professional basis participated in our study. Our results reveal that the addition of BODs oversight disclosure (positive information) does not carry significant weight on investor judgments (i.e., attractiveness and investment) when financial statement disclosures indicate a high level of operational and financial risk exposures (negative information). In contrast, under the condition of a low level of risk exposures, BODs oversight disclosure causes investors to assess higher risk in terms of worry, catastrophic potentials and unfamiliarity about risk information and, in turn, make less favorable investor judgments. Our findings add to the literature on negativity bias and contribute to the debate on the usefulness of disclosures about risk

Work Together

I firmly believe that a two-way or Socratic approach fosters dialogue between a professor and her students and helps them to expand their curiosity, seek knowledge and learn critical thinking skills. In this interactive two-way process, a professor acts as a facilitator rather than an authoritative figure. As part of the interactive class setting, I use an approach called ‘let’s work together.’ This approach requires students to participate in class while working on a number of problems. In every class session, I distribute a handout of short or long problems to students and we then solve the problems together. I randomly select a number of students and ask them to walk me through the problem step-by-step. If one student cannot figure out the solution, that student can ask someone else to step in and help. I use this ‘ask for help’ policy so that everybody can participate in solving the problem, whether it is on a voluntary basis or requested by peers.To make students feel comfortable with the ‘let’s work together’ dynamic, I tell them that it is perfectly acceptable to say “I don’t’ know how solve this problem” or “I have no idea, but would like to ask someone else to help me.”https://digitalscholarship.unlv.edu/btp_expo/1114/thumbnail.jp

The Effects of Disclosure Type and Audit Committee Expertise on Chief Audit Executives’ Tolerance for Financial Misstatements

This study involves an experiment where 73 Chief Audit Executives and deputy Chief Audit Executives determine the amount of adjustment required to correct a misstatement. We manipulate the financial reporting location of the misstatement (recognized vs. disclosed) and the level of audit committee expertise (high vs. low). The results indicate that financial reporting location has significant effects on internal auditors’ decisions to correct misstatements. Specifically, internal auditors are more willing to waive disclosed misstatements relative to recognized misstatements. Contrary to expectations, the results do not indicate that increased audit committee expertise and associated increases in audit committee members’ perceived powers cause internal auditors to be less willing to waive misstatements

Boiling the Frog Slowly:The Immersion of C-Suite Financial Executives into Fraud

This study explores how financial executives retrospectively account for their crossing the line into financial statement fraud while acting within or reacting to a financialized corporate environment. We conduct our investigation through face-to-face interviews with 13 former C-suite financial executives who were involved in and indicted for major cases of accounting fraud. Five different themes of accounts emerged from the narratives, characterizing executives' fraud immersion as a meaning-making process by which the particulars of the proximal social context (the influence of social actors and contextual characteristics) and individual motivations collectively molded executives' vocabularies of fraud immersion. Our executives' narratives portray their fraud entanglement as typically occurring in small, incremental steps. Their accounts expand our understanding of the influence of socialization on executive-level financial fraud beyond the individualized focus of the fraud triangle model

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

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

The Effects of Audit Committee Financial Accounting Expertise and Recognition versus Disclosure on Chief Audit Executives\u27 Tolerance for Financial Misstatements

The present study examines and finds that internal auditors, particularly Chief Audit Executives, recognize financial accounting expertise as a significant base of audit committee (AC) power in the financial reporting process. However, such an AC expertise (i.e., financial accounting expertise) does not counterbalance internal auditors\u27 perceived dependency on management or influence their decisions to monitor financial reporting quality. Instead, the cost-benefit analysis affects their decisions: (1) benefits of staying resolute to monitor financial reporting quality (i.e., psychological empowerment ), and (2) costs of potential adverse reactions of management who exerts power over the internal audit. In addition, this study examines and finds that the financial reporting location (recognition vs. disclosure) has significant impacts on both internal audit reporting decisions and decisions to correct misstatements. Specifically, internal auditors\u27 tolerances for disclosed misstatements reveal that they also feed the vicious circle of reliability expectations as external auditors do in a prior study (Libby, Nelson and Hunton, 2006)

Understanding the effects of Environment, Social, and Governance conduct on financial performance: Arguments for a process and integrated modelling approach

To date, an overwhelming number of research findings on Environment, Social, and Governance (ESG) conduct and financial performance remains inconclusive. Furthermore, research has not identified nor explained the “underlying mechanisms” behind this relationship. To encourage future research, we discuss the mechanisms by identifying the first-order, mediating, and moderating variables. We synthesize recent studies for emerging themes and implications; argue for a process and integrated approach for modelling causality between ESG conduct and financial performance variables; and suggest methods to analyze the models. We also advocate for researchers to explore the idea that balancing corporate conduct among the E, S, and G components may provide revelations about financial performance. We also discuss how incorporating “greenwashing” in a process and integrated model may explain the ESG conduct and financial performance link, or more than likely the lack of it