Like Moths Attracted to Flames: Managerial Hubris and Financial Reporting Fraud

57 Pages Posted: 5 Jan 2010 Last revised: 1 Feb 2013

See all articles by Michel Magnan

Michel Magnan

Concordia University - Department of Accountancy

Denis Cormier

University du Quebec a Montreal

Pascale Lapointe‐Antunes

Brock University - Faculty of Business

Date Written: January 5, 2010

Abstract

In this paper, we analyze the governance, control and media patterns underlying financial reporting and asset misappropriation frauds. We argue that the fraud triangle framework (incentive, opportunity, rationalization) that underlies most prevention and detection practices provides a partial picture of the fraud landscape and does not pay enough attention to its dynamic nature. In our view, a missing ingredient is managerial hubris, fed by fawning media and financial market participants, which ignites and accelerates the fraud triangle. Hubris is characterized by exaggerated self-confidence, arrogance and oblivion to reality. Focusing on the population of financial frauds in Canadian publicly traded firms during the 1995-2005 period, we show that hubris, i.e., irrationality, may be a critical factor to understand corporate financial frauds. Our findings also suggest that fraud patterns may differ across countries, constrasting with the adoption of global auditing standards.

Keywords: financial reporting fraud, fraud triangle, governance, media, hubris, asset misappropriation

JEL Classification: M41

Suggested Citation

Magnan, Michel and Cormier, Denis and Lapointe-Antunes, Pascale, Like Moths Attracted to Flames: Managerial Hubris and Financial Reporting Fraud (January 5, 2010). CAAA Annual Conference 2010, Available at SSRN: https://ssrn.com/abstract=1531786 or http://dx.doi.org/10.2139/ssrn.1531786

Michel Magnan

Concordia University - Department of Accountancy ( email )

Montreal, Quebec H3G 1M8
Canada

Denis Cormier

University du Quebec a Montreal ( email )

P.O. Box 8888, Downtown Station
Succursale Centre Ville School of Management 315 rue Ste-Catherine Est
Montreal, Quebec H3C 3P8
Canada
514-987-3000, ext. 8358 (Phone)
514-987-6629 (Fax)

Pascale Lapointe-Antunes (Contact Author)

Brock University - Faculty of Business ( email )

St. Catharines, Ontario L2S 3A1
Canada
905-688-5550, 5251 (Phone)
905-688-9779 (Fax)

HOME PAGE: http://www.bus.brocku.ca/faculty/faculty.php?id=139&d=Accounting

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
190
Abstract Views
1,481
rank
189,521
PlumX Metrics