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OPPORTUNISTIC BEHAVIOR IN ACCOUNTING CHOICES: THE INFLUENCE OF EMOTIONS AND PERSONALITY Milan, Juliana. C. et al, 2015 Corresponding Author: Weffort, Elionor Jreige ABSTRACT Corporate frauds and other harmful practices might find support in accounting. Such situations occur because subjects at the time of accounting choice distance themselves from the faithful representation of the economic event for him or a third party benefit, generating biased information. Internal and external motivations influence the subjects in decision making, being the external the most observed by literature. Our research verified if the opportunistic behavior in accounting choices was influenced by internal motivations, specifically, the emotions and the Machiavellianism personality traits. We conducted a survey with accounting and business undergraduate and graduate students. Data treatment included factor analysis and multinomial logistic regression models. The results pointed out that both emotions and Machiavellianism have influence on accounting opportunistic behavior (earnings management and fraud). We found that positive emotions can inhibit opportunistic behavior and negative emotions can promote it. We expected that these findings contribute to mitigation of corporate frauds. Keywords: Accounting choices; Opportunistic behavior; Emotions; Machiavellianism; Behavioral accounting.

1. INTRODUCTION Several problems in the financial market happened throughout history. Cases such as the financial bubble of Tulips, which took place in seventeenth-century Holland (Mackay 2001); the crash of the New York Stock Exchange in 1929; the bubble on the Nasdaq Stock Exchange in 2000, which reached the dot-com companies; the financial subprime bubble that began in the United States and quickly spread around the world in 2008 (Silva 2010), are examples of financial crises that affected the world economy. Events such as the aforementioned generate crises of confidence in the capital markets, leading to the withdrawal of investors. Among these crises is possible to highlight the corporate frauds on early twenty-first century by American companies that had great representation for the markets, such as Enron in 2001, causing losses worth US $ 78 billion; Tyco International in 2002 with losses of $ 3.2 billion in shares and $ 150 million in bonus payments and loans to executives; WorldCom in 2002 with losses of $ 103.9 billion and Health South in 2003, with losses for the market worth $ 1.4 billion (Forbes 2013). Partnoy (2003) observed that these financial scandals, including the audit firms approval of financial statements which were later found to be fraudulent, have 1

OPPORTUNISTIC BEHAVIOR IN ACCOUNTING CHOICES: THE INFLUENCE OF EMOTIONS AND PERSONALITY Milan, J. C. et al., 2015 Corresponding Author: Weffort, Elionor Jreige brought concerns about the conflict between auditors and companies – and the inability of regulators to monitor them. In this context, it is necessary to know how accounting choices occur, especially with the adoption of International Financial Reporting Standards – IFRS in over one hundred countries around the world. Because they are based on principles, IFRS give more discretion to preparers, auditors and companies, relying on the value judgment of those involved (Leuz 2010). Every time preparers of financial statements make accounting choices that differ from the economic and financial situation of the company, they are increasing the chance of corporate fraud. This kind of behavior is called opportunistic. For purposes of this research opportunistic behavior includes the practices of earnings management and fraud. For Grasso et al. (2009), there is no fraud without earnings management and, therefore, this type of practice is a 'first step' of opportunistic behavior. Previous studies noticed that the motivations for the practice of opportunistic behavior can be internal and external. The external ones are mainly originated from the capital markets, contracts and regulations (Healy and Wahlem 1999; Watts and Zimmerman 1990; Fields et al. 2001), while the internal motivations are associated to emotional and psychological characteristics. Such motivations included status, power, remain in employment, prestige, financial problems, achieve the goals set by the company, increase or ensure their remuneration and so on (Pearsosns 2006; Duffield and Grabosky 2001; Riahi-Belkaoui and Picur 2000). Research in earnings management and fraud has devoted greater attention to external motivational factors. Previous studies on internal motivational factors indicated that the Machiavellianism affects the moral decision-making and is associated with immoral behavior and an opportunistic business environment (Bratton 2004; O'Fallon and Butterfield 2005; Shafer and Wang 2011; Murphy 2012; Vladu 2013). Otherwise, negative emotions were observed in fraud scenarios, are associated with risk-taking and can promote opportunistic behavior (Zeemberg et al 2008; Tzieropoulos et al 2011; Shawver and Clements 2012; Clements and Shawver 2013). This context presented in the literature justifies our choice of behavioral accounting focusing on internal motivational factors, underexplored in the literature.

OPPORTUNISTIC BEHAVIOR IN ACCOUNTING CHOICES: THE INFLUENCE OF EMOTIONS AND PERSONALITY Milan, J. C. et al., 2015 Corresponding Author: Weffort, Elionor Jreige The main objective of our research was to verify if the opportunistic behavior in accounting choices is influenced by internal motivations, more specifically, the emotions and the Machiavellianism personality traits. To achieve this purpose, we investigated the relationship between the independent variables – personal characteristics, emotions and personality traits of Machiavellianism – and the dependent variable, the opportunistic behavior of the subjects in accounting choices. Since they influence the behavior in different ways, the emotion variables were divided into positive (joy, pride, admiration, compassion, gratitude, indignation, relief, satisfaction) and negative (sadness, fear, anger, jealousy, guilt, contempt, disappointment, regret and shame). The variables of Machiavellianism personality traits were divided into four constructs: 'amorality', 'desire for status', 'desire to control' and 'distrust of others.' We used the Machiavellianism Personality Scale model – MPS, created in 2009 by Dahling, Whitaker and Levy. We defined "accounting choices" as the dependent variable, and it was obtained by presenting situations concerning accounting recognition and measurement, with three possible choices/answers – earnings management, fraud and faithful representation. Our research differs from the other presented in the literature, because in addition to studying the internal motivational factors in business, the subjects under evaluation were submitted to a scenario of accounting choices – three different choices – rather than judgments (cases occurred where respondents should judge the attitude of the decision maker). It is noteworthy also because investigates the influence of psychological aspects in accounting choices, using several variables of emotions – positive and negative, primary and secondary – making it more comprehensive than in other studies in business. By investigating internal motivational factors that could facilitate or inhibit opportunistic behavior in the accounting choices, it is expected that this research will contribute: i. to accounting professional education, highlighting issues that might be relevant to address; ii. to regulators, identifying critical areas, especially regarding enforcement; iii. to reduce conflicts between stakeholders and executives, helping to design appropriate corporate governance mechanisms for motivation and control. This paper is structured as follows: first, a review of previous studies and the formulation of hypotheses will be undertaken (Section 2); second, a description of the methodological procedures used, including the variables, models, and sample population will

OPPORTUNISTIC BEHAVIOR IN ACCOUNTING CHOICES: THE INFLUENCE OF EMOTIONS AND PERSONALITY Milan, J. C. et al., 2015 Corresponding Author: Weffort, Elionor Jreige be detailed (Section 3); an analysis of the main results with their corresponding statistical tests will be presented (Section 4); and the summary, conclusions, and suggestions for future research will be outlined (Section 5).

2. LITERATURE REVIEW AND HYPOTHESES

2.1 Accounting choices and opportunistic behavior

The accounting choices occur in three activities: recognition, measurement and /or disclosure of economic event. Fields et al. (2001) raised the works produced in the 90's that addressed the topic with accounting choices as proxy for market imperfections (agency costs, asymmetric information and externalities). They observed that, during that decade, there has been no significant development in research on the subject, to the extent that they much preferred replicate previous studies rather than deepen the analysis. Concerning regulation, the adoption of IFRS – International Financial Reporting Standards by one hundred countries give more freedom for companies to act with discretion, since they are principle-based standards (Leuz 2010). For Jones (2011) the flexibility of the standard is to allow companies operating in completely different scenarios to represent, using the same standard, the economic reality of the company and not for creative accounting practices. Watts and Zimmerman (1990) show that most of the studies that deal with accounting choices report that managers adopt certain choices in order to transfer income for them, featuring thus opportunistic behavior. The opportunistic behavior occurs when the choices managers make decisions that maximize their wealth at the expense of other stakeholders. One of the manifestations of opportunistic behavior in the financial choices occurs through earnings management. This process is originated by the ability to manipulate and make the right choices, in order to achieve a desired level of income (Riahi-Belkaoui 2005). Stlowy and Breton (2004) illustrate in Figure 1 the existing dimensions of the opportunistic behavior from earnings management to fraud.

FIGURE 1 HERE

OPPORTUNISTIC BEHAVIOR IN ACCOUNTING CHOICES: THE INFLUENCE OF EMOTIONS AND PERSONALITY Milan, J. C. et al., 2015 Corresponding Author: Weffort, Elionor Jreige

In the center of Figure 1 are the financial statements without any impact of accounting manipulation. On the sides are the behaviors towards earnings management and on the extreme frauds. So it is clear that the boundary point between earnings management and fraud is actually very thin. Fraud is the second manifestation of opportunistic behavior in the financial choices to be investigated. Fraud-related issues are part of the complex social context, including regulation, governance, economic crisis, poverty, race, youth and politics, among others (Lehman and Okcabol 2005). Jones (2011) points out that the difference between earnings management and fraud lies in the fact that the first is within the accounting standards and the second does not. It can be said that fraud is the extreme point of earnings management practices (Kalbers 2009). For Grasso et al. (2009) fraudulent reports occur when managers and accountants are engaged in earnings management practices. For them, every fraudulent report might be considered earnings management, but not all of them can be considered fraud. Fraud can be committed in two ways: individually or by the management (as a group). When committed individually, it involves, for example, the theft of cash or even inventories. However, if the fraud involved the company's management, usually there is also the crime of preparation of false financial statements, in order to trick the users (Jones 2011). Researches indicated that in most cases of fraud, the senior management of the companies was involved (i.g. Martin et al. 2002; Badawi 2005). Thus, fraud is an opportunistic behavior that adopts accounting manipulations, through choices outside the generally accepted accounting principles, in order to meet a specific motivation of company’s managers. The opportunistic behavior is closely related with subjects’ motivation. Three motivational variables – bonus plan, debt agreements and political processes – were extensively addressed in previous studies (e.g. Watts and Zimmerman 1990; Fields et al. 2001; Burgstahler et al 2006). Several analyzed the motivations for accounting choices from stock market expectations, contractual and regulatory perspectives (Healy and Wahlen 1999; Fields et al. 2001). For purposes of our research the reasons for opportunistic behavior – fraud and earnings management – were be addressed with the following classification, concerning its origin: capital market, contractual and regulatory (or political).


2.2. Machiavellianism and opportunistic behavior Hall et al. (2000) introduced the concept of personality traits when they say that these are not peculiar only to one subject. This means that the trace can be shared by a range of subjects, however, it can also be particular, and this occurs in its manifestation. This manifestation can be observed jointly by a psychometric analysis, or individually by a clinical analysis. Personality is a subfield of psychology, defined as the scientific study of the psychological forces that make people unique (Friedman and Schustack 2004). Personality is a predisposition to behave in a systematic way, and, based on the theory and empirical evidence; it is possible to conclude that this is a relatively identifiable, stable and measurable field for research that helps to explain some of the behavior at work (Taggar and Parkinson 2007). For our research, personality is a characteristic that can be shared by a range of subjects and therefore they can behave in a systematic way (subclinical approach). Chart 1 shows some recent studies that indicate the relationship between the subjects' behavior and personality.

CHART 1 HERE

The term Machiavellianism is originated from the Niccolo Machiavelli's ideas, presented in his major work The Prince, written in 1513, in which he addressed the media that man uses to maintain power. According to Cyriac and Dharmaraj (1994), the Machiavellian plays great influence on the business communities, especially in the United States and Europe, as managers prefers to follow pragmatism and opportunism of its dictates rather than observe their individual consciousness. As a construct of psychology, the Machiavellianism was applied in the organizational field since the 70's, through the MACH IV scale, with broader application in the 80’s (Grohmann and Battistella 2012). The other instrument used to measure Machiavellianism was developed by Dahling et al. (2009) and is called Machiavellianism Personality Scale – MPS. With this instrument the Machiavellianism is measured according to four scales: 'disbelief in others', 'amorality', 'desire for status' and 'desire to control'. The construct is defined as follows (Dahling et al. 2009): a) Disbelief in others: cynical perception about the motivations and intentions of others;

OPPORTUNISTIC BEHAVIOR IN ACCOUNTING CHOICES: THE INFLUENCE OF EMOTIONS AND PERSONALITY Milan, J. C. et al., 2015 Corresponding Author: Weffort, Elionor Jreige b) Amorality: ignore moral standards; have opportunistic behavior obtaining gains for themselves at the expense of others; c) Desire for status: pursue external goals that are indicators of success. d) Desire for control: need to exercise control over interpersonal situations;

For this research we used the Machiavellianism Personality Scale – MPS. Figure 2 associated the results found in previous studies on Machiavellianism and opportunistic behavior with the hypotheses investigated in our study.

FIGURE 2 HERE

2.3. Emotions and opportunistic behavior

Emotion is a state of affective feeling that can vary in intensity (Gaudine and Thorne 2001). Damásio (2000, p 74) pointed out that "emotions are complex sets of chemical and neural responses, forming a pattern; all emotions have some sort of regulatory role to play [...]". Emotions are divided into primary and secondary. Primaries are those innate, i.e. those universal emotions of happiness, sadness, fear, anger, surprise or disgust. The primary emotions do not describe all emotional behaviors and represent only the basic process. Secondary emotions, also classified as social emotions, are represented by jealousy, embarrassment, guilt or pride (Damásio 1994 and 2000). Lane et al. (1997) noticed that the concept of primary or basic emotions was originated in Darwin's studies in 1872, in his work ‘The expression of emotion in man and animals’. Wilkowski and Robinson (2010), Arslan (2010) and Park and Lee (2011) investigated the rage; Inman et al. (1997) analyzed the disappointment and regret after a choice; Mellers and McGraw (2001) observed the impact of anticipated emotions; Rajeev and Bhattacharyya (2007) investigated the negative emotions of grief and disappointment; Simonson (1992) researched the anticipation of regret and responsibility in purchasing decisions; Bratton (2004) investigated how subjects make ethical decisions; Zeelenberg et al. (2008) observed how emotions impact in decision making; Bagozzi et al. (1998) analyzed how emotions influence behavior directed towards a goal; Pfister and Böhm (2008) addressed the role of

OPPORTUNISTIC BEHAVIOR IN ACCOUNTING CHOICES: THE INFLUENCE OF EMOTIONS AND PERSONALITY Milan, J. C. et al., 2015 Corresponding Author: Weffort, Elionor Jreige emotions in decision making; and Kim and Johnson (2013) evaluated the impact of emotions on marketing campaigns. The mentioned studies confirmed that positive and negative emotions affect behavior in different ways. The negative emotions might influence the subjects to change decisions in order to prevent the continuity of the negative state (Tzieropoulos et al 2011; Gaudine and Thorne 2001). In addition, this type of emotion has greater commitment to risks (Connelly et al. 2004; Moreno et al. 2002; Park and Lee 2011) and may lead to negative judgments (Lerner and Keltner 2000). Another aspect of negative emotion is that it can lead the subjects to assign a lower probability of positive events in the future, and this can result in a decision away from the ideal (Gaudine and Thorne 2001). When it comes to positive emotions, Mellers and McGraw (2001) argue that anticipated pleasure improves the predictability of choices, and also improves their utility. Brockington (2011) observed that positive emotions can contribute to increase the quality of learning of certain content. Moreover, the positive affect may cause increased satisfaction which impacts on more deliberative judgments, aligned with the ideal judgment (Gaudine and Thorne 2001). The accounting behavioral research used a variety of methods to investigate the decision-making process. Birnberg (2000) classified the behavioral accounting research into four types according to their focus: evaluate individuals, observe the role of strategic behavior in decision making, organizations and environmental conditions. Concerning emotions and accounting, Shawver and Clements (2012) found that emotions can help positively in ethical issues, inhibiting choices that may be unethical. The authors concluded that accountants feel disappointment and regret with fraudulent accounting reports (Clements and Shawver 2012) and that relief and satisfaction (positive emotions) together with the negative emotion of regret affect moral judgment, but do not affect whistle blowing by accountants (Clements and Shawver 2013). Figure 3 summarizes the results found in the literature of research on emotions and opportunistic behavior, relating them with our hypotheses.

FIGURE 3 HERE

3. RESEARCH DESIGN AND DATA COLLECTION


This study is characterized as a behavioral accounting research (BAR). According to Birnberg and Ganguly (2011) accounting is conceptualized to collect, summarize, analyze and report information to potential users and research in the behavioral area's role is to verify human behavior in these tasks. Cozby and Bates (2011) pointed out that scientific research on behavior has four general objectives: describe the behavior, predict the behavior, determine the causes of behavior and finally explain the behavior. As a strategy for data collection was used a survey, given that it offers a means of empirical verification of theories. Moreover, the data collected become source of research (Babbie 2003; Cozby and Bates 2011). For implementation of such a strategy, we designed a data collection instrument, described in the following sections.

3.1. Variables

To perform this research we investigate the relationships between the independent variables: personal characteristics, emotions and personality traits of Machiavellianism and the dependent variable (opportunistic behavior of the subjects in accounting choices), as shown in Figure 4.

FIGURE 4 HERE

The emotions variables were divided into positive and negative because it is expected that they influence the behavior in different forms. Joy, pride, admiration, compassion, gratitude, indignation, relief and satisfaction were selected as positive emotions and, sadness, fear, anger, jealousy, guilt, contempt, disappointment, regret and shame as negative. Chart 2 associates the questionnaire with the emotions variables and previous studies.

CHART 2 HERE

The construct of Machiavellianism (personality) was divided into four modes: 'amorality', 'desire for status', 'desire to control' and 'distrust of others.' We used the

OPPORTUNISTIC BEHAVIOR IN ACCOUNTING CHOICES: THE INFLUENCE OF EMOTIONS AND PERSONALITY Milan, J. C. et al., 2015 Corresponding Author: Weffort, Elionor Jreige Machiavellianism Personality Scale model – MPS, created in 2009 by Dahling, Whitaker and Levy. Chart 3 shows the section of the questionnaire about the Machiavellianism.

CHART 3 HERE

Finally, to study the opportunistic behavior in the accounting choices (dependent variable) was drawn up an instrument in which the respondents had three choices of accounting options, corresponding to earnings management, fraud and faithful representation. 3.2. Data collection In order to test the proposed hypotheses set out in sections 2.2 and 2.3, we apply the questionnaire (section 3.1) to accounting and business senior students of undergraduate and postgraduate (lato and stricto sensu) courses in Brazil. The choice for students in behavioral research is justified in the literature (e.g. Kim and Johnson 2013). We obtained 505 valid questionnaires, divided as follows: 71% are graduate students in business areas and 29% are accounting undergraduate students.

4 RESULTS AND DISCUSSION The data analysis was divided into three stages: the first presents a descriptive analysis to clarify the sample profile. In the second step was performed a factor analysis of emotions variables and the Machiavellianism questions, with two main objectives: i) the decrease in the amount of explanatory variables; ii) the development of emotions and Machiavellianism constructs. The third step was the development of a multinomial logistic regression model in order to verify how the variables, both personal characteristics, such as the constructs of emotions and Machiavellianism, are associated with accounting choices. Concerning the sample, the main characteristics are: 54.65% are under 30 years, 45.35% are above; 50.10% are men and 49.90% women; 88.91% have training in accountancy, 9.50% have degrees in other fields of business (management, economics and law); 46.93% have up to 5 years of experience, 32.48% have between 6 and 10 and 20.59% have 11 or more; 15.05% consider themselves non-religious, 13.47% very religious and 71.49% moderately religious.

OPPORTUNISTIC BEHAVIOR IN ACCOUNTING CHOICES: THE INFLUENCE OF EMOTIONS AND PERSONALITY Milan, J. C. et al., 2015 Corresponding Author: Weffort, Elionor Jreige With respect to the financial choices, the distribution of respondents was as follows: 57% decided on faithful representation, 37% for earnings management, and 6% of respondents opted for fraud. 4.1. Factor analysis Factor analysis was performed, using the Principal Components Method with varimax rotation, in order to obtain the constructs of emotions and Machiavellianism. The determination of the number of constructs (abstract factors) was based on the criterion of eigenvalues greater than 1 (Jonhson and Wichern 2007). For emotions, it resulted in two constructs that explained 63.7% of the total variation of data (KMO equal to 0.913 and Bartlett's Test of Sphericity significant at 1%). For the Machiavellianism, five constructs were obtained, that explained 65.7% of the total variation in the data (KMO equal to 0.722 and Bartlett's Test of Sphericity significant at 1%). The constructs of emotions and Machiavellianism resulting from factor analysis are shown in Figure 5.

FIGURE 5 HERE

According to Figure 5, the emotions variables resulted in two constructs: 1 – Negative Emotion and 2 – Positive Emotion. Previous studies that observed emotions variables did so much more briefly, addressing only one or a few of them in order to evaluate their impact on decision-making in business (Mellers and McCraw 2001; Wildowski and Robinson 2010; Park and Lee 2011; Shawver and Clements 2012). The questions about the Machiavellianism are extracted from the MPS tool developed by Dahling et al. (2009). The MPS contains 45 questions that are divided into four components: 'amorality' 14 questions, 'desire to control' with 11 questions, 'desire for status' with 9 questions, and 'disbelief in others' with 11 questions. After adjusting for the final model, 32 questions were eliminated, given that the factors they had formed presented an eigenvalue inferior to 1.0 (Jonhson and Wichern 2007). The factors obtained in the factor analysis for the Machiavellianism are aligned with the MPS construct, so we obtained 5 factors: 1 – 'disbelief in others', 2 – 'amorality', 3 – 'desire for status' 4 – 'desire for control – I' (reverse) and 5 – 'desire to control'. The construct 'disbelief in the others' is characterized as a cynical view on motivations and

OPPORTUNISTIC BEHAVIOR IN ACCOUNTING CHOICES: THE INFLUENCE OF EMOTIONS AND PERSONALITY Milan, J. C. et al., 2015 Corresponding Author: Weffort, Elionor Jreige intentions of others; 'amorality' refers to ignoring moral standards, have opportunistic behavior in which it has won for himself at the expense of others; 'desire for status' is conceptualized by pursuing external goals that are indicators of success and; 'desire to control', the need to exercise control over interpersonal situations. We observed that ‘desire for control’ has two factors, and what distinguishes them is that one is composed of inverse issues, and if relevant to the model, its results should be read in reverse (Dahling et al. 2009). 4.2. Multinomial logistic regression model The multinomial logistic regression was chosen because the dependent variable is not metric, with three or more categories of answers (Hosmer and Lemeshow 2000). In this case, the dependent variable is the accounting choice (earnings management, fraud and faithful representation), and the category 'faithful representation – FR' was adopted as reference in the logistic model. Thus, the model was suitable for comparison between the categories. Table 1 shows the results of the multinomial logistic regression model. It is worth noting that the model included a selection of respondents’ profile variables, as well as emotions and Machiavellianism constructs obtained from factor analysis (Figure 5). The quality of the model adjustment was assessed by Pearson and Deviance tests; obtaining an appropriate model with p-value equal to 0.222 and 1.000, respectively.

TABLE 1 HERE

From the 14 variables, 6 of them were significant. These results corroborate previous studies results raised by Loe et al. (2000) and O'Fallon and Butterfield (2005). Concerning the subjects’ profile variables, only period of professional experience was significant. Accordingly, the literature showed that this is a relevant variable for opportunistic behavior (Rosenzweig and Fischer 1994). In Table 1, it is possible to observe that the coefficient for the construct of negative emotions was significant and positive in both models, ‘earnings management – EM’ in relation to ‘faithful representation – FR’ and ‘fraud’ in relation to ‘faithful representation – FR’; i.e., there is a greater chance that the respondent with higher scores in negative emotions, choose earnings management or fraud practices instead of providing faithful representation to

OPPORTUNISTIC BEHAVIOR IN ACCOUNTING CHOICES: THE INFLUENCE OF EMOTIONS AND PERSONALITY Milan, J. C. et al., 2015 Corresponding Author: Weffort, Elionor Jreige users. On the other hand, the coefficient for the construct of positive emotions was significant and negative in both models. Regarding the personality variable of Machiavellianism, significance was obtained for the constructs ‘amorality’ in both models and ‘need to control’ only for the model of ‘fraud’ in relation to ‘faithful representation – FR’. Previous studies indicate that subjects that have this feature have a low awareness of it (Paulhus and Williams 2002), usually behaving beyond the limits, which implies that they would probably consider any alternative that promote their own interests. Chart 4 summarizes our proposed hypotheses tested in the models and the results.

CHART 4 HERE

The results for the construct 'amorality' – defined as the desire to ignore the standards of morality in order to have opportunistic behaviors that bring gains for themselves at the expense of others (Dahling et al. 2009) – show a positive relationship between opportunistic behavior and ‘amorality’. The construct 'desire to control' – the need to exercise control over interpersonal situations (Dahling et al. 2009), decreasing the power of the other – presented a negative relationship with opportunistic behavior, i.e., an increment on 'desire to control', lower the chance of occurring behavioral deviations in accounting choices. Note that this factor was significant only in the model ‘fraud’ in relation to ‘faithful representation’. This result contradicts previous findings (please refer to Figure 2) as it was expected that ‘desire to control’ motivates opportunistic behavior. A possible explanation – not particularly addressed in our research – is that frauds usually demand other people involvement and, if control is concentrated, it could be an obstacle. Emotions are intrinsic part of the decision-making process (Damásio 1994, 2000, 2004) and affect it in different ways (e.g Tzieropoulos et al. 2011; Gaudine and Thorne 2001). It is expected that positive emotions relate negatively with opportunistic behavior, and may inhibit unethical accounting choices (Shawver and Clements 2012), since they contribute to the recognition of ethical and moral issues (Gaudine and Thorne 2001; Clements and Shawver 2013). Negative emotions, in turn, are closely associated with the risk (Connelly et al. 2004; Moreno et al. 2002; Park and Lee 2011) and, as well as the positive, affects also the behavior

OPPORTUNISTIC BEHAVIOR IN ACCOUNTING CHOICES: THE INFLUENCE OF EMOTIONS AND PERSONALITY Milan, J. C. et al., 2015 Corresponding Author: Weffort, Elionor Jreige in decisions that have moral issues (Clements and Shawver 2013). Chart 5 presents the hypotheses tested in the model and the main results.

CHART 5 HERE

In general, the results indicate that the relationship between the opportunistic behavior and the negative emotions is positive and negative between opportunistic behavior and positive emotions. Finally, Chart 6 summarizes the findings on opportunistic behavior and the internal motivational variables, emotions and Machiavellianism.

CHART 6 HERE

5. CONCLUSIONS Our main purpose was to verify if opportunistic behavior in the accounting choices is influenced by emotions and the Machiavellianism (personality). The results pointed out that both of them have influence on accounting opportunistic behavior, i.e. earnings management and fraud. Regarding the relevance and implications of our research, even though this is an exploratory research and the results cannot be inferred throughout the population, the reasonable number and careful selection of respondents (505 valid responses of students and professional directly involved with accounting choices), a broad selection of internal motivations and the scarcely literature on the subject addressing Brazilian context, indicate that the findings might contribute to understand the context of corporate frauds and accounting role in them. Beyond the external motivations extensively associated with opportunistic behavior by previous studies, there must also be a concern with inner motivation, i.e. the motivations which are intrinsic to each of us at the time of accounting choice. The results of our research pointed out that emotions and Machiavellianism are related to accounting choice and consequently must be taken into consideration for designing and implementing plans to mitigate harmful accounting practices.

OPPORTUNISTIC BEHAVIOR IN ACCOUNTING CHOICES: THE INFLUENCE OF EMOTIONS AND PERSONALITY Milan, J. C. et al., 2015 Corresponding Author: Weffort, Elionor Jreige The construct of positive emotions bring common characteristics that could facilitate access to information, help learning and contribute to greater satisfaction, increasing the chance of optimal decisions. Positive emotions that mitigate opportunistic behavior addressed by our research were joy, pride, admiration, gratitude, relief and satisfaction. These emotions, except joy, are classified in the literature as secondary, which means that they are directly linked to the social environment and, therefore, can be modified. Regulators, market, academia and others might consider these findings to stimulate the development of environments that could contribute to the inhibition of harmful practices. On the other hand, the negative emotions construct is closely related to risk and lower probability attributed to future positive events, which leads to decisions usually far from ideal. These characteristics were also observed in our results, because such emotions are promoting opportunistic behavior. Our negative emotions construct was composed by anger, sadness, fear, anger, guilt, contempt, disappointment, regret and shame. Government, market (e.g. stock exchanges) and professional accounting associations should be aware of their regulation and enforcement procedures in order to avoid encouraging emotions that might contribute to the opportunistic behavior. For future research, the questionnaire could be applied in other countries and the results compared. Also, other variables might be included, such as culture, which influences the secondary emotions and consequently opportunistic behavior in accounting choices. Another way to observe the behavior in accounting choices would be through experimental propositions.

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Figure 1: Earnings management and frauds (adapted from Stlowy and Breton, 2004).

AUTHORS

MAIN OBJECTIVES

INSTRUMENT

RESULTS

Paulhus and Willians 2002

Investigated if dark triad traits are equivalents.

NPI - SRP III MACH IV - BIG FIVE

Psychopaths present low neuroticism, psychopathy traits and Machiavellianism that result in low conscience.

Multi scales – reverse translation

Personality traits distinguish subjects regarding loyalty.

Basso and Esparte 2009

Hales et al 2012

Investigated the elementary personality traits and consumer behavior. Investigated the relationship between narcissism and management reports.

NPI

Murphy 2012

Investigated the tendency to commit fraud and personality traits.

EXPERIMENT

Brown et al 2013

Investigated narcissism and leadership in business students.

NPI

Bailey 2013

Dworkis 2013

Majors 2014

Investigated the relationship between psychopathy and immoral behavior in accounting students. Investigated the investment decision and narcissism. Investigated the relationship between dark triad and aggressive financial reports.

the

Narcissism stimulates executives to manipulate the results in order to highlight their performance. Machiavellianism and negative emotions are positively associated with biased information, because they fell less guilty. Accounting students have lower level of narcissism than those of other business courses. Gender and leadership also affect narcissism.

LENVENSON SCALE

There is a positive relationship between psychopathy and immoral behavior.

NPI

The score of narcissism affects the management investment decisions.

SD3

The presence of traits of dark triad in executives is associated with more aggressive financial reports.

Chart 1: Some previous studies about personality and business practices.


CONSTRUCT

VARIABLES

PREVIOUS STUDIES

HYPOTHESES

Emotions affect decision making; EMOTIONS X OPPORTUNISTIC BEHAVIOR

H3 - EMO - Emotions affect accounting choices H4 - EMO - Emotions affect accounting choices in different ways

Emotions affect decion making in different ways; Emotions do not influence risk taking; Positive emotions lead to moral behavior;

EMOTIONS

POSITIVE EMOTIONS X OPPORTUNISTIC BEHAVIOR

Positive emotions increase the probability of moral issues perception;

H5 - EMOP - Positive emotions are negatively related with opportunistic behavior

Positive emotions want to be maintained; Positive emotions acchivement;

are

associated

with

goal

Negative emotions lead to opportunistic behavior; NEGATIVE EMOTIONS X OPPORTUNISTIC BEHAVIOR AUTHORS

Negative emotions scenarios;

are

experienced

in

fraud H6 - EMON - Negative emotions are positively related with opportunistic behavior

Negative emotions lead to risk taking; Negative emotions do not want to be maintained;; Negative emotions can promote opportunistic behavior;

Damasio 1994, 2000, 2004; Gaudine and Thorne 2001; Clements and Shawver 2012; Connelly et al 2004; Moreno et al 2002; Shawver and Clements 2012; Tzieropoulos et al 2001; Pfister and Böhm 2008; Lerner and Keltner 2000; Kim and Johnson 2013; Clements and Shawver 2013; Park and Lee 2011; Rajeev and Bhattacharya 2007.

Figure 2: Machiavellianism and opportunistic behavior – hypotheses. CONSTRUCT

VARIABLES

PREVIOUS STUDIES

HYPOTHESES

Personality traits contribute to explain human behavior; Machiavellianism impacts negatively moral decision making; Machiavellians disclosure reports with more aggressive information; Machiavellians have low conscience and search for status and control;

MACHIAVELLIANISM

MACHIAVELLIANISM X OPPORTUNISTIC BEHAVIOR

Machiavellians present behavior related to self promotion and obsession with victory; Machiavellianism is associated with immoral behavior, pragmatism and opportunism in business environment ; Earnings management machiavellians;

is

judged

more

lightly

H1 - MAQ - Machiavellianism affects opportunistic behavior in accounting choices; H2 - MAQ - Machiavellianism has a positive relation with opportunistic behavior.

by

Competition promotes Machiavellianism; There is a negative relation between Machiavellianism and whistle blowing; AUTHORS

There is a positive relation between Machiavellianism and moral flexibility.

Paulhus and Williams 2002; Murphy 2012; Majors 2014; Dahling et al 2009; Bratton 2004; Cyriac and Dharmaraj 1994; Loe et al 2000 ; O’Fallon and Butterfield 2005; Vladu 2013.

Figure 3: Emotions and opportunistic behavior – hypotheses.


PROFILE OF RESPONDENTS

EMOTIONS

MACHIAVELLIANISM

BEHAVIOR ACCONTING CHOICE EARNINGS MANAGEMENT

FRAUD

FAITHFUL REPRESENTATION

EARNINGS MANAGEMENT

FRAUDE

Figure 4: Research design and variables.

PURPOSE

VARIABLES

SCALE

PREVIOUS STUDIES

From 1 – totally disagree to 7 – totally agree

Gaudine and Thorne 2001; Clements and Shawver 2012; Connelly et al. 2004; Moreno et al. 2002; Shawver and Clements 2012; Choe and Min 2011; Mellers and McGraw 2001; Lerner and Keltner 2000; Bratton 2004; Zeelenberg et al 2008; Tzieropoulos et al 2011; Brockigton 2011; Kim and Johnson 2013.

Joy Pride Admiration Compassion Positives (P)

Gratitude Indignation

E M O T I O N S

Relief Satisfaction Sadness Fear Anger Jealousy Negatives (N)

Guilty Contempt Disappointment Regret Shame

Chart 2: Questionnaire and emotions variables.

LIKERT

Verify if opportunistic behavior in accounting choices is affected by emotions.


PURPOSE

Verify if opportunistic behavior in accounting choices is affected by Machiavellianism

QUESTIONS / SCALE

VARIABLES P e r s o n a l i Machiavellianism t y T r a i t s

PREVIOUS STUDIES

Amorality

Desire for Status Desire to Control

L I K E R T

Disbelief in others

MPS adapted from Dahling, Whitaker & Levy (2009) From 1 – totally disagree to 7 – totally agree

Bratton 2004; O'Fallon and Butterfield 2005; Shafer and Wang 2011; Cyriac and Dharmaraj 1994; Grohmann and Battistella 2012; Dahling et al. 2009.

Chart 3: Questionnaire and the Machiavellianism.

INDEPENDENTS VARABLES MACHIAVELLIANISM

EMOTIONS

DISBELIEF OTHERS

AMORALITY

PROFILE OF RESPONDENTS NEGATIVE

DESIRE STATUS

POSITIVE

DESIRE CONTROL I

DESIRE CONTROL

DEPENDENTS VARABLES ACCOUNTING CHOICE FRAUD

EARNINGS MANAGEMENT

REFERENCE FAITHFUL REPRESENTATION

EARNINGS MANAGEMENT

FRAUD

Figure 5: Research design with constructs of emotions and Machiavellianism.


Accountin Variables g choice EM Constant in relation Disbelief in others FR Amorality Desire for status Desire to control (I - inverted) Desire to control Negative emotions Positive emotions Respondent – graduate Respondent – undergraduate (reference) Professional experience 00-05 years Professional experience 06-10 years Professional experience 11 or more years Fraud Constant in relation Disbelief in others FR Amorality Desire for status Desire to control (I - inverted) Desire to control Negative emotions Positive emotions Respondent – graduate Respondent – undergraduate (reference) Professional experience 00-05 years Professional experience 06-10 years Professional experience 11 or more years

Coefficien t -1,098 ,001 ,202 -,016 -,112 -,056 ,128 -,312 ,483 ,480 ,349 -3,646 ,073 ,374 -,240 -,150 -,415 ,408 -,475 ,646 1,202 ,448 -

Table 1: Multinomial logistic model for accounting choices (Pseudo R² = 10%). Significance levels: ' * ' 10% ' ** ' 5% ' *** ' 1%. FR: faithful representation.

p-value ,000 ,990 ,042 ,870 ,251 ,574 ,197 ,003 ,036 ,071 ,204 ,000 ,711 ,052 ,226 ,421 ,046 ,024 ,023 ,166 ,043 ,490 -

*** **

*** ** *

*** *

** ** **

**


CONSTRUCT

HYPOTHESES H1 – The Machiavellianism affects the opportunistic behavior in accounting choices H2-1 – Disbelief in others has positive relation with opportunistic behavior H2-2- Amorality has positive relation with opportunistic behavior

Disbelief in others Amorality MACHIAVELLANISM

RESULTS ACCEPTED

REJECTED ACCEPTED

H2-3 – Desire for status has positive relation with opportunistic behavior H2-4 – Desire to control (I inverted) has negative relation with opportunistic behavior

Desire of status Desire to Control (I)

REJECTED REJECTED Relation was confirmed, but it is negative

H2-5 – Desire to control has positive relation with opportunistic behavior

Desire to control

Chart 4: Hypotheses tests results for Machiavellianism construct. VARIABLES Emotions versus Opportunistic Behavior

HYPOTHESES

RESULTS

H3 - EMO – Emotions affects accounting choices

ACCEPTED

Positive Emotions versus Opportunistic Behavior

H4 - EMO – Emotions affects accounting choices in different ways H5 - EMOP – Positive emotions has negative relation with opportunistic behavior

Negative Emotions versus Opportunistic Behavior

H6 - EMON – Negative emotions has positive relation with opportunistic behavior

ACCEPTED ACCEPTED ACCEPTED

Chart 5: Hypotheses tests results for emotions construct.

INTERNAL MOTIVATIONAL VARIABLES Profile

Emotions Machiavellianism

Chart 6: Summary of results.

VARIABLES AND CONSTRUCTS

RESULTS FOR RELATION WITH OPPORTUNISTIC BEHAVIOR

Professional Experience (Years)

RELEVANT

Graduate/Undergraduate

RELEVANT

Negative

PROMOTE

Positive

INHIBIT

Amorality

PROMOTE

Desire to control

INHIBIT

PAPER_OPORTUNISTIC BEHAVIOR IN ACCOUNTING CHOICES - FEA

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