Management Accounting and Control: The Role of Ethical Reasoning, Goals, Climate, and Moral Disengagement on Unethical Behavior

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2022-12

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Abstract

Management accounting and control (MAC) is not only a collection of system processes that provides usable firm information, it is also increasingly seen to be a key mechanism in reinforcing employee ethical behavior. The literature suggests a coordinated emphasis of multiple MAC systems is required to be successful in promoting ethical behavior. I deploy a research instrument in which an accounting manager is pressured by their CFO to commit fraud by not disclosing material contingent liabilities as part of an IPO. I investigate the role of the informal work climate dimension of social hierarchy and the formal MAC system of goal setting on accounting manager unethical behavior through the theoretical lens of moral disengagement. Specifically, I find that the social hierarchy power (team) aspect of my 2X1 randomized experimental manipulation is positively (negatively) associated with unethical behavior. I also employ scale measures of power (team) social hierarchy and find that they are associated with more (less) unethical behavior as well. Findings also indicate that my scale measures of outcome (learning) goals are also consistently associated with more (less) unethical behavior, as predicted. Results also suggest that situational state moral disengagement is strongly associated with accounting fraud while more well-known measures of ethical reasoning, social consensus and seriousness of consequences attenuate such accounting manager unethical behavior. The situational influences of fraud seriousness of consequences and situational displacement of responsibility both moderate my social hierarchy power (team) manipulation. Lastly, I show that a combination of unethical MAC systems display reinforcing effects for stronger accounting manager fraudulent behavior.

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Keywords

management accounting and control, goal setting, work climate, moral disengagement, unethical behavior

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