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Journal of Business Ethics (2005) 60: 115129 Springer 2005 DOI 10.1007/s10551-004-7370-9
Unethical and Fraudulent Financial Reporting: Applying the Theory of Planned Behavior
Tina D. Carpenter Jane L. Reimers
ABSTRACT. This research applies the theory of planned behavior to corporate managers decision making as it relates to fraudulent nancial reporting. Specically, 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 ndings are relevant to corporate leaders who seek to improve ethical work climates of organizations and to many regulators, accountants, corporate governance ofcials and investors.
KEY WORDS: ethics, nancial reporting, fraud, managerial decision making, theory of planned behavior
Introduction
The purpose of this research is to apply the theory of planned behavior to corporate managers propensity to commit fraud in nancial reporting decisions. Recent discoveries of fraudulent nancial reporting WorldCom, Enron, Xerox, Waste Management, and others have put the spotlight on the nancial decision making of corporate managers.
Decisions by companies to engage in off-balance sheet nancing or to capitalize expenditures that should be written off have resulted in serious nancial repercussions for the involved companies, for investors, and for the economy as a whole. More than any other time since the stock market crash in the early 20th century, the ethics of managers and executives have been called into question. We need to know both the causes of unethical nancial reporting and possible remedies so that we can restore public condence in nancial accounting and reporting.
In this paper, we apply the theory of planned behavior to corporate managers nancial reporting decisions in an ethical context. Using two methodologies, we use the theory of planned behavior to isolate three inuences known to be indicators of fraud attitudes, subjective norm, and perceived control to measure their effects on managers intended behavior when the managers are faced with the ethical question of whether or not to violate GAAP. Specically, we examine the effects of attitude, subjective norm, and perceived control on a managers decision to improperly defer the recognition of expenses...