Propensity for unethical behavior may be a desirable trait for accounting executives or even the reason the company hired them in the first place. Ling Lin Harris, assistant professor of accountancy, examined the role dark personality traits play in the accounting executive hiring process.
“This research is about how job candidates with dark personalities are selected for senior accounting manager positions in for-profit companies,” said Harris, who joined the College of Business in 2019. “A unique feature of our study is that we recruited real-world professional executives and executive recruiters to look at candidate profiles and for companies with pressure to manage earnings we found they select job candidates who have dark personalities.”
Published in the Journal of Business Ethics in March, “Recruiting Dark Personalities for Earnings Management” dove into the relationship between hires with dark personality traits and earnings management, which is the manipulation of company earnings to produce overly positive numbers. Harris and the co-authors of the study, Nick Seybert of the University of Maryland, Scott Jackson, ’97, of the University of South Carolina and Joel Owens of Portland State University, uncovered how the willingness of some candidates to push ethical boundaries to meet financial objectives often helped them be hired.
“The fundamental issue is that in for-profit companies, earnings management is very prevalent. What we found out is for dark-personality candidates, their personality signals their propensity to manage earnings and surprisingly they’re more likely to be hired if the company objective is to meet an earnings target,” she said.
The research aligns with Harris’ previous work on financial reporting, including “Investors’ Reactions to Reported Earnings when Management Issues Goal versus Expectation Earnings Guidance: An Experimental Investigation” published in the Journal of Financial Reporting and “The Effect of Investor Status on Investors’ Susceptibility to Earnings Fixation” in Contemporary Accounting Research. Alongside top peer-reviewed academic journals, Reuters, CFO and the New York Post have also featured Harris’ research.
“I’m really interested in understanding why there is a prevalence of earnings management. Despite regulatory efforts for many decades, earnings management still persists. By focusing on employee selection, we have identified one of the potential root causes of earnings management. We believe one answer to this question resides in the types of people who are recruited and selected by, and retained in, organizations,” said Harris.
The study asked more than 100 corporate executives to examine two equally-qualified job candidates to assess their fit in the organization. The candidates included one with dark personality traits – such as the ability to rationalize questionable behavior and the tendency to be narcissistic – and one who possessed fewer such characteristics. The results displayed a striking contrast depending on the scenario.
“If a company has pressure to manage earnings, then about 86% of hiring professionals would pick the candidate with dark personality traits. If that company doesn’t have pressure to manage earnings, then about 88% would pick the candidate without these traits,” explained Harris.
Prior research indicated a prevalence of dark personalities in management positions and pointed to the possibility that those traits are only an unfortunate byproduct of otherwise strong leaders. However, Harris and her co-authors conclude quite the opposite.
“What we found is that it is not a byproduct, and that dark personalities are intentionally selected into these positions. It is for the sole purpose of pushing the boundary to engage in earnings management,” she said.
Harris’ research also lends to teaching Financial Accounting (GRBA 809), where she explains the basics of financial accounting and reporting, along with the construction of financial statements and their interpretations to users of financial information.
Overall, Harris believes the impact of this research not only comes from the effect it may have on the future hiring process, but also the regulatory implication it has. She hopes their findings help further research in this topic and help create better regulations surrounding earnings management.
“We are providing insights to regulators that in order to have better success in curbing earnings management, they should also consider the cultural dimensions within the company,” she explained.
To view the research, visit: https://link.springer.com/article/10.1007/s10551-021-04761-z.
To learn more about the School of Accountancy, visit: https://business.unl.edu/accounting.