Accountants' ethical sensitivity

O'Fallon and Butterfield (2005) in a review of the business ethics literature concluded that "ethical awareness" also called ethical sensitivity has received the least attention of the four steps in Rest's (1986) ethical decision making model. Available measures for ethical sensitivity are limited to specific contexts and suffer from several limitations. I extend the previous literature by creating a new measure for ethical sensitivity (AESS) that encompasses relevant dimensions for the accounting profession and is not specific to a particular setting. I also introduce a new individual differences variable to the accounting ethics literature. Specifically, I investigate the relationship between anti-intellectualism and ethical awareness. My findings support AESS as a measure of ethical sensitivity

Examining the effect of deception detection decision aids on investors\u27 perceptions of disclosure credibility and willingness to invest

Recent evidence suggests that the trend of issuing video disclosures is growing and investors are exposed to the risk of including deceptive information in their decisions. This study suggests that investors can use deception detection decision aids to identify deceptive behavior in video disclosures, and that the use of such decision aids affects their perceptions of disclosure credibility and willingness to invest. The theoretical framework of this study suggests that providing investors with a deception detection decision aid affects their willingness to invest through their perceptions of disclosure credibility, and that this effect is conditional on management\u27s reputation. Using data from 387 nonprofessional investors, the findings provide support for the predicted effect of deception detection decision aid on investors\u27 judgment and decision making. The effect of providing investors with a deception detection decision aid is fully mediated by investors\u27 perceptions of disclosure credibility, and that effect is significantly stronger when management\u27s reputation is good than when management\u27s reputation is bad

Three Studies Examining Nonprofessional Investors\u27 Decision Making

This dissertation consists of three studies exploring nonprofessional investors\u27 decision making. Technological advancements witnessed by the capital markets in recent years have caused significant changes to the dissemination and use of information, particularly by nonprofessional investors. Among these developments is the growth of social media that allows anyone to post information upon which others may rely and the availability of DAs that assist decision makers in evaluating the quality of information reported by an organization. The purpose of this dissertation is to investigate the benefits of using DAs that are capable assessing the quality of information reported to capital market participants and to investigate the effect of information retrieved from social media on nonprofessional investors\u27 decisions. Study 1 highlights concerns over the ease of spreading video disclosures via social media outlets. Recent evidence from practice and research suggests that the trend of issuing video disclosures is growing and that investors are exposed to the risk of including deceptive information contained in those videos in their decision making process. The theoretical model introduced in this study suggests that investors can use deception detection DAs to identify deceptive behavior in video disclosures, and that the use of such DAs affects their perceptions of disclosure credibility. This study posits that management\u27s pre-existing reputation affects investors\u27 perceptions of disclosure credibility, and that the negative output of a deception detection DA can dilute the effect of management\u27s pre-existing reputation on investors\u27 perceptions of disclosure credibility. Using data from 376 nonprofessional investors, the findings support the proposed theoretical model and suggest that deception detection dilutes the effect of management\u27s pre-existing reputation on investors\u27 perceptions of disclosure credibility. The effect of management\u27s pre-existing reputation on investors\u27 perceptions of disclosure credibility is significantly weaker when the output of deception detection DA detects deception than when it fails to detect deception. Supplemental analyses suggest that the effect of deception detection is not limited to investors\u27 perceptions of disclosure credibility, but also affects investors\u27 willingness to invest. Deception detection dilutes the effect of management\u27s pre-existing reputation on willingness to invest as well. These findings suggest that investors can mitigate the risks associated with video disclosures and improve their decisions by using deception detection DAs. Study 2 highlights concerns over the spread of linguistic manipulations in corporate disclosures. Recent evidence from the accounting literature suggests that managers strategically use linguistic manipulations and that investors unintentionally include the effect of these linguistic manipulations in their decisions. This study builds on the existing literature on linguistic manipulations and argues that providing investors with a DA that is capable of detecting linguistic manipulations can assist them in making investment decisions. The theoretical model introduced Study 2 suggests that the detection of linguistic manipulations (the occurrence of an expectation violation) moderates the effect of managers\u27 incentives on investors\u27 willingness to invest through disclosure credibility such that the effect of managers\u27 incentive on investors\u27 willingness to invest is expected to be weaker when the DA detects linguistic manipulations than when the DA fails to detect linguistic manipulations. Using data from 472 nonprofessional investors, the findings do not support the proposed theoretical model and suggest the effect of management incentive on investors\u27 willingness to invest through disclosure credibility is not moderated by the detection of linguistic manipulations. These findings show that detecting linguistic manipulation has the same effect on managers with incentive to manipulate the language used corporate reports as those with no incentive to manipulate the language used in corporate reports. Study 3 highlights concerns over social media outlets that have enabled investors to communicate between themselves at an unprecedented rate. This study highlights the risk of using information retrieved from social media outlets and argues that investors are exposed to the risk of including erroneous information in their information set. This study uses the Social Identification of the De-individuation Effect model (SIDE) to argue that visual anonymity has an effect on investors\u27 willingness to invest through their perceptions of disclosure credibility and that this effect depends on whether investors* have low or high social identification with the group of forum users. Using data from 401 nonprofessional investors, the findings do not support the proposed theoretical model. Nevertheless, findings from this study suggest that investors\u27 social identification has an effect on their perceptions of disclosure credibility, and that social identification and visual anonymity have a joint effect on investors\u27 willingness to invest. More precisely, investors with low social identification are more influenced by forum comments when they read the forum comments via text than when they view the forum comments via video; and, investors with high social identification are more influenced by forum comments when they view the forum comments than when they read the forum comments. While findings from this study provide support for the moderating role of social identification advanced in SIDE, the moderating role of social identification is in the opposite direction. Thus, this study fails to provide support for SIDE

Getting caught “sugar coating”: The behavioral implications of using a decision aid that detects linguistic manipulations in financial disclosures

Evidence from recent studies suggests that management strategically uses linguistic manipulations to “sugar coat” corporate narratives particularly when it is to their advantage. Research also suggests that investors are influenced by these manipulations and that they are not capable of detecting them on their own. Emerging technologies such as textual analysis software are capable of analyzing corporate narratives; however, their impact on investors’ decision making remains unknown. This manuscript explores the effect of these emerging technologies a priori to their availability and investigates whether providing investors with a decision aid (DA) that is capable of detecting linguistic manipulations can be an effective tool that can be used by investors. We theorize that these DAs may have an effect on investors’ judgment and decision making and that their effect may interact with other contextual factors such as management incentive to provide a more optimistic disclosure when the news is not necessarily good. More precisely, we investigate the effect of management incentive and the detection of linguistic manipulations in management’s disclosures on investors’ perceptions of disclosure credibility and willingness to invest, and whether the detection of linguistic manipulations moderates the impact of management incentive. Results show that both management incentive and detection of linguistic manipulations have a significant effect on investors’ perceptions of disclosure credibility and willingness to invest. Therefore, these DAs can be an effective tool that investors can use to detect linguistic manipulations

Getting Caught “Sugar Coating”: The Behavioral Implications Of Using A Decision Aid That Detects Linguistic Manipulations In Financial Disclosures

Evidence from recent studies suggests that management strategically uses linguistic manipulations to “sugar coat” corporate narratives particularly when it is to their advantage. Research also suggests that investors are influenced by these manipulations and that they are not capable of detecting them on their own. Emerging technologies such as textual analysis software are capable of analyzing corporate narratives; however, their impact on investors’ decision making remains unknown. This manuscript explores the effect of these emerging technologies a priori to their availability and investigates whether providing investors with a decision aid (DA) that is capable of detecting linguistic manipulations can be an effective tool that can be used by investors. We theorize that these DAs may have an effect on investors’ judgment and decision making and that their effect may interact with other contextual factors such as management incentive to provide a more optimistic disclosure when the news is not necessarily good. More precisely, we investigate the effect of management incentive and the detection of linguistic manipulations in management’s disclosures on investors’ perceptions of disclosure credibility and willingness to invest, and whether the detection of linguistic manipulations moderates the impact of management incentive. Results show that both management incentive and detection of linguistic manipulations have a significant effect on investors’ perceptions of disclosure credibility and willingness to invest. Therefore, these DAs can be an effective tool that investors can use to detect linguistic manipulations

Lessons From The Literature On The Theory Of Technology Dominance: Possibilities For An Extended Research Framework

This manuscript provides a detailed review of the extant literature on the Theory of Technology Dominance (TTD) (Arnold and Sutton 1998) and proposes a research framework for refinement of the predictions offered by the TTD. Based on the reviewed TTD studies and related decision aid research, additional factors that may affect users’ tendency toward reliance or no reliance on the recommendation of an intelligent decision aid (DA) are identified and consolidated into a refined model. Following Arnold and Sutton’s (1998) deductive-analytical approach, as well as Weber’s (2003) four-step theory-building methodology, four additional factors (initial trust, confidence, built trust, and explanation) are identified and linked to the existing TTD framework via articulation of five novel propositions. As such, the present study makes a theoretical contribution to the information systems literature, as well as to the broader reliance literature and identifies possibilities for future inquiry into practice-relevant understanding of human-computer interactions

Too big to fail and bank loan accounting in developing nations: Evidence from the Mexican financial crisis

During the 1990s and early 2000s, developing nations in all parts of the world experienced financial crisis. Studies have documented, both theoretically and empirically, that authorities’ guarantee that insolvent financial institutions would be “bailed out” increased the incentives of banks, especially large institutions, to take on excessive loan risk. However, little research has been conducted on how the possibility of being “bailed out” impacts banks’ decisions regarding the understatement of loan loss reserves (i.e. the tendency to conceal loan risk). We argue that the Mexican financial crisis of the 1990s represents a rich setting to investigate the link between “bailout assistance” and banks’ accounting for loan loss reserves. The analysis of loan trends for the entire financial system shows that Mexican banks fully reserved non-performing loans not in 1997, when new accounting standards took effect, but rather in 1999–2001, after the largest institutions had been sold to foreign banks and international bailout assistance had been exhausted. Also, the results show that in the period preceding their sale to foreign institutions, “Too Big To Fail” (TBTF) banks used bailout assistance to directly manage their reserves. By contrast smaller banks used non-bailout sources of capital to reserve non-performing consumer loans, and directly swapped non-performing commercial loans for bailout assistance. Thus, while both TBTF and smaller banks utilized bailout assistance, the bailout funds only affected loan loss reserve levels in the case of TBTF banks

Machiavellianism, Moral Orientation, Social Desirability Response Bias, and Anti-intellectualism: A Profile of Canadian Accountants

Prior research has demonstrated that accountants differ from the general population on many personality traits. Understanding accountants’ personality traits is important when these characteristics may impact professional behavior or ability to work with members of the business community. Our study investigates the relationship between Machiavellianism, ethical orientation (idealism, relativism), anti-intellectualism, and social desirability response bias in Canadian accountants. We find that Canadian accountants score much higher on the Machiavellianism scale than U.S. accountants. Additionally, our results show a significant relationship between Machiavellianism and relativism, idealism, anti-intellectualism, and social desirability response bias. Our results indicate that professional Canadian accountants may not share the same personality characteristics as U.S. accountants. We extend previous research investigating Canadian accountants, by explicitly recognizing the impact of social desirability response bias, and by including anti-intellectualism

Too Good To Be True! The Bifurcated Effect Of Strong Tone In Management Disclosures On Investors\u27 Decisions

Research has shown evidence of the use of impression management strategies in corporate disclosures as a means of presumably tempering and swaying investors\u27 perceptions. These impression management strategies include shifts in the tone used when providing disclosures. However, recent research also provides evidence that such techniques can have a contrary effect when the tone of the message appears to be too good to be true. This study explores how the use of optimism and certainty in the Management Discussion and Analysis (MD&A) portion of the annual report affects nonprofessional investors\u27 investment decisions - a class of investors known to heavily rely on the MD&A portion of annual reports. We theorize a bifurcated effect where optimism and certainty have a positive and direct effect on investor willingness to invest, but at the same time optimism and certainty have a negative indirect effect on willingness to invest that is mediated through decreased perceptions of disclosure credibility. The results provide evidence supporting such a bifurcated effect from the use of tone in management disclosures

Can multitasking influence professional scepticism?

Motivated by concerns about the adverse effects of multitasking in audit practice and research that highlights the effects of mindset orientation on professional scepticism, we investigate how the performance of tasks consistent with different mindset orientations affects auditors’ professional scepticism in a subsequent, unrelated task. Results show that auditors who first complete a task that requires concrete (abstract) thinking display greater professional scepticism during a subsequent, unrelated task that involves evaluating a narrow and complete set of evidence (a broad and incomplete set of evidence). We discuss the implications for professional scepticism in multitasking environments