How leaders influence (un)ethical behaviors within organizations: A laboratory experiment on reporting choices

70 Pages Posted: 6 Nov 2019 Last revised: 25 Feb 2022

See all articles by Mario Daniele Amore

Mario Daniele Amore

Bocconi University - Department of Management and Technology

Orsola Garofalo

Copenhagen Business School

Alice Guerra

University of Bologna - Department of Economics

Date Written: October 28, 2019

Abstract

We use a lab experiment to examine whether and how leaders influence workers’ (un)ethical behavior through financial reporting choices. We randomly assign the role of leaders or workers to subjects, who can choose to report an outcome via automatic or self-reporting. Self-reporting allows for profitable and undetectable earnings manipulation. We vary the leaders’ ability to choose the reporting method, and to punish workers. We show that workers are more likely to choose automatic reporting when their leader voluntarily does so, and can assign punishment. Even workers who choose self-reporting tend to cheat less when their leader chooses automatic reporting. Nonetheless, most leaders do not opt for automatic reporting in the first place: they often choose self-reporting, and punish workers who rather choose automatic reporting. Collectively, our results reveal a dual effect of leadership on ethical behaviors in organizations: workers behave more ethically if their leader makes ethical choices, but often leaders do not make ethical choices in the first place. Hence, leading by example can backfire.

Keywords: financial reporting; ethical leadership; leaders; fraudulent behavior; cheating

JEL Classification: M14, M41, D20, C92

Suggested Citation

Amore, Mario Daniele and Garofalo, Orsola and Guerra, Alice, How leaders influence (un)ethical behaviors within organizations: A laboratory experiment on reporting choices (October 28, 2019). Available at SSRN: https://ssrn.com/abstract=3476617 or http://dx.doi.org/10.2139/ssrn.3476617

Mario Daniele Amore (Contact Author)

Bocconi University - Department of Management and Technology ( email )

Via Roentgen 1
Milan, MI 20136
Italy

Orsola Garofalo

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Alice Guerra

University of Bologna - Department of Economics ( email )

Bologna
Italy

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