Unintended Consequences of a Creative Corporate Culture: An Empirical Investigation

62 Pages Posted: 18 Aug 2018 Last revised: 8 Dec 2018

See all articles by In Gyun Baek

In Gyun Baek

National University of Singapore

Sewon Kwon

Ewha Womans University-School of business

Ella Mae Matsumura

University of Wisconsin-Madison - Department of Accounting and Information Systems

Date Written: December 7, 2018

Abstract

While firm managers emphasize the importance of establishing a culture of creativity in hopes that such a climate will lead to successful new products and/or services, recent literature finds creativity also promotes opportunistic behavior. Two recent experimental studies suggest two different reasons for this finding. On the one hand, recent psychological evidence shows creativity promotes individuals’ self-serving rationalizations to convince themselves that their behavior is acceptable (the “rationalization channel”). On the other hand, contemporaneous research suggests individuals in a creative environment have a preference for accepting greater risk in decision-making, which leads to self-interested behavior (the “risk-taking channel”). We complement experimental evidence by using survey and archival data to show that a creative corporate culture is positively associated with financial misconduct. In addition, our findings provide stronger support for the rationalization channel. Taking advantage of our archival setting, we further extend experimental findings by showing that 1) external monitoring costs of a creative culture firm are high, as indicated by higher audit fees and 2) despite the potential negative effects, the net effects of a creative corporate culture are positive, as indicated by firm value and future performance.

Keywords: creativity, corporate culture, fraud triangle

JEL Classification: M14, M41

Suggested Citation

Baek, In Gyun and Kwon, Sewon and Matsumura, Ella Mae, Unintended Consequences of a Creative Corporate Culture: An Empirical Investigation (December 7, 2018). AAA 2019 Management Accounting Section (MAS) Meeting, Available at SSRN: https://ssrn.com/abstract=3234037

In Gyun Baek

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore 119245

Sewon Kwon

Ewha Womans University-School of business ( email )

52 Ewhayeodae-gol, Seodaemun-gu
Ewha-Shinsegae #404
Seoul
Korea, Republic of (South Korea)

Ella Mae Matsumura (Contact Author)

University of Wisconsin-Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-262-9731 (Phone)
608-265-6040 (Fax)

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