Financial restatements have been shown to be associated with management reputation loss and turno... more Financial restatements have been shown to be associated with management reputation loss and turnover. The literature on cost stickiness has shown that cost stickiness has been associated with both management optimism as well as agency and behavioral issues such as empire building. In this paper, we investigate the relationship between Selling, General, and Administrative (SG&A) cost stickiness and financial restatements. We show that SG&A cost stickiness decreased significantly post financial restatements, and the decrease was significantly more in the case of restatements associated with fraud than those not associated with fraud. Our results support the following: (a) financial restatements act as a disciplining device for possible managerial excesses, and (b) firms working harder to reduce SG&A cost stickiness when financial restatements were associated with fraud than when they were not associated with fraud.
The purpose of this research is to investigate the relationship between internal control material... more The purpose of this research is to investigate the relationship between internal control material weaknesses (ICMWs), as measured by presence, number, and type, and Foreign Corrupt Practices Act (FCPA) violations. Our results indicate that firms with ICMWs are more likely to violate the FCPA and firms with multiple ICMWs have a higher likelihood of violating the FCPA than firms with fewer ICMWs. Further, firms with ICMWs related to the risk assessment, control environment, and control activities components of internal controls (based on the COSO Internal Control—Integrated Framework) present a higher risk of FCPA violations than firms without ICMWs in those areas. These findings substantiate the importance of effective internal controls in supporting firms' regulatory compliance. JEL Classifications: M42; M48; D73.
This study seeks to examine the genetic basis of deception detection performance using the classi... more This study seeks to examine the genetic basis of deception detection performance using the classic twin study design. A synthesis of current literature on twin studies and deception detection suggests a genetic basis for deception detection performance may exist. An experiment was conducted to examine the genetic basis for deception detection, and the moderating effect of training on improvement in deception detection performance. One hundred and ninety two twins participated in the experiment, with 65 pairs of monozygotic (MZ; identical) twins and 31 pairs of dizygotic (DZ; fraternal) twins. Performance on a series of deception detection tasks revealed that variability in deception detection performance was largely determined by shared and non-shared environmental influences. Moreover, declarative training significantly moderated change in deception detection performance. Implications of these findings are discussed with respect to both academic research and fraud prevention practices.
ABSTRACT: Researchers are assessing the viability of automating deception detection in TAC (text-... more ABSTRACT: Researchers are assessing the viability of automating deception detection in TAC (text-based, asynchronous, computer-mediated) messages. Viability is conditional on whether deceivers incorporate different features in their TAC messages than truth tellers do and on whether these differentiating features support deception indicators suitable for automation. We propose that deceivers incorporate different features in their messages to realize impression-management goals. They avoid message features people associate with lying (defensive-targeted features) and include message features people associate with truth telling (promotive-targeted features). In a series of three studies, we assessed features that may be part of deceivers' impression-management strategies and then assessed whether deceivers' messages contain different levels of these features than truth tellers' messages. The results show that deceivers construct different messages than truth tellers do and...
The study experimentally examines the usability of a participant's writing style in email inq... more The study experimentally examines the usability of a participant's writing style in email inquiries for fraud (misrepresentation) risk assessment by determining whether auditors can detect appropriate language-based risk factors in an email. The results suggest risk factors are present in emails, but auditors fail to use them for risk assessment. For example, shorter emails arouse skepticism when, in fact, this language feature is an insignificant risk factor. More fitting linguistic-based risk factors are lack of specifics and overuse of qualitative descriptions. Guidance may improve auditors' recognition of appropriate linguistic-based risk factors in email text. Alternatively, risk factors may be too vague to perceive, suggesting a need for techniques to strengthen them in an email inquiry.
Review of Business Information Systems (RBIS), 2011
Trust seals provide a business assurance service in e-commerce. Vendors employ trust seals to inc... more Trust seals provide a business assurance service in e-commerce. Vendors employ trust seals to increase the perception of their trustworthiness. In this paper, we create an analytical framework that we use to group trust seals into five categories: (1) comprehensive certificate provider, (2) seller evaluation service, (3) market evaluator, (4) market assurance service, and (5) niche service. Our framework provides an easy means for online shoppers to differentiate trust seals and motivate seal providers to develop new services.
SYNOPSIS:This study examines the association between chief executive officer (CEO) age and the fi... more SYNOPSIS:This study examines the association between chief executive officer (CEO) age and the financial reporting quality of firms. The financial reporting qualities examined are the meeting or beating of analyst earnings forecasts and financial restatements. Based on extant research, we hypothesize that older CEOs are associated with higher-quality financial reporting. Using a sample of 3,413 firms for the period 2005 to 2008, we find a positive association between CEO age and financial reporting quality. Specifically, we find that CEO age is negatively associated with firms meeting or beating analyst earnings forecasts and financial restatements. Our study therefore extends the corporate governance and financial reporting quality literature by identifying CEO age as a determinant of financial reporting quality.Data Availability: Data are publicly available.
This study investigates the relationship between national culture and the magnitude of occupation... more This study investigates the relationship between national culture and the magnitude of occupational fraud. Guided by national culture theory and economic theory of crime, we propose that a country's culture, as measured by Hofstede's six national culture dimensions—power distance, individualism, achievement orientation, uncertainty avoidance, long-term orientation, and indulgence—is related to the magnitude of occupational fraud. Further, we propose that the type of fraud moderates this relationship. We test these effects using a two-level model on a dataset of 2,898 occupational fraud cases across 41 countries. We find that uncertainty avoidance and long-term orientation display significant positive associations with occupational fraud magnitude (while power distance and achievement orientation display marginally significant positive associations). Further, the effects of achievement orientation, uncertainty avoidance, and indulgence are moderated by fraud type (while power...
Trust seals are business assurance service in e-commerce. Vendors apply for trust seals to increa... more Trust seals are business assurance service in e-commerce. Vendors apply for trust seals to increase their trustworthiness. In this paper, we classify trust seals in five different categories: (1) comprehensive certificate provider, (2) seller evaluation service, (3) market evaluator, (4) market assurance service, and (5) niche service. We derive the five categories through three steps: (1) reviewing literature, (2) examining c-commerce processes, and (3) reviewing seal providers’ documents. Our framework and analytical process can help e-commerce consumer to differentiate different types of seals and inspire seal provider to develop new services. We also identify many research opportunities for academics.
Purpose Deception detection is instrumental in business management but professionals differ widel... more Purpose Deception detection is instrumental in business management but professionals differ widely in terms of deception detection performance. The purpose of this paper is to examine the genetic basis of deception detection performance using the classic twin study design and address the research question: how much variance in individual differences in deception detection performance can be accounted for by the variance in genetics vs environmental influences? Design/methodology/approach In total, 192 twins, with 65 pairs of monozygotic (identical) twins and 31 pairs of dizygotic (fraternal) twins participated in an experiment. A series of behavioral genetic analyses were performed. Findings The variability in deception detection performance was largely determined by differences in shared and non-shared environments. Research limitations/implications The subjects were solicited during the Twins Days Festival so the sample selection and data collection were limited to the natural settings in the field. In addition, the risks and rewards associated with deception detection performance in the study are pale in comparison with those in practice. Practical implications Deception detection performance may be improved through training programs. Corporations should continue funding training programs for deception detection. Originality/value This is the first empirical study that examines the complementary influences of genetics and environment on people’s ability to detect deception.
This study is the first to empirically investigate the relationship between national culture and ... more This study is the first to empirically investigate the relationship between national culture and fraud. We develop and test hypotheses with regard to the relationship between each of Hofstede’s six...
Research suggests that interviewers' judgments about an interviewee's truthfulness are to... more Research suggests that interviewers' judgments about an interviewee's truthfulness are too unreliable to be useful for important decisions such as fraud risk assessment. The present study examines whether interviewers can distinguish falsifiers from truth-tellers. In an experiment, accounting students (n = 66) interviewed either a falsifying or truth-telling interviewee. Those who interviewed a falsifier perceived the interviewee as thinking harder and less forthcoming, and the interviewer expressed a stronger belief that the interviewee had lied (Lying). A logistic regression function accurately detected more falsifiers with the interviewee's perceptions of thinking hard and forthcomingness as predictors than with Direct Lying assessments. These findings suggest that interviewers know more about an interviewee's lying than they convey in a direct lying assessment. Hence, interviewers may have insight about an interviewee's appearance that can improve evaluations...
This study models the process by which auditors draw a suspicion of lying from an interviewee'... more This study models the process by which auditors draw a suspicion of lying from an interviewee's behavior and tests the model with perceptions and beliefs collected from 147 auditors after they observed an interview. An understanding of the way auditors become suspicious of lying may lead to improvements in their deception‐detection training. The proposed structural model includes impressions of the interviewee as intervening variables between perceptions of behavior and suspicion of lying. It was evaluated using SEM. The results show the instrumentality of two impressions, uneasiness and non‐informativeness. An additional finding is that mental stress, which can be more intense for liars than for truth tellers, is not a suspicious behavior. Auditors may disregard signs of mental stress because interviewees typically have to answer thought‐provoking questions, thereby confounding the mental stress of lying with the mental stress of the interview.
Review of Business Information Systems (RBIS), 2011
We report on an experimental study of the impact of outcome bias and accountability on documentat... more We report on an experimental study of the impact of outcome bias and accountability on documentation decisions. The subjects, working on an information system development project, decided on how much of the process details (both good and bad) known only to the project team, would be made part of an intra-organizational knowledge database. We find that outcome bias has a significant influence on decisions. Managers of failure projects were more inclined to report more of the bad process details than managers of successful projects, consistent with attribution theory.
Financial restatements have been shown to be associated with management reputation loss and turno... more Financial restatements have been shown to be associated with management reputation loss and turnover. The literature on cost stickiness has shown that cost stickiness has been associated with both management optimism as well as agency and behavioral issues such as empire building. In this paper, we investigate the relationship between Selling, General, and Administrative (SG&A) cost stickiness and financial restatements. We show that SG&A cost stickiness decreased significantly post financial restatements, and the decrease was significantly more in the case of restatements associated with fraud than those not associated with fraud. Our results support the following: (a) financial restatements act as a disciplining device for possible managerial excesses, and (b) firms working harder to reduce SG&A cost stickiness when financial restatements were associated with fraud than when they were not associated with fraud.
The purpose of this research is to investigate the relationship between internal control material... more The purpose of this research is to investigate the relationship between internal control material weaknesses (ICMWs), as measured by presence, number, and type, and Foreign Corrupt Practices Act (FCPA) violations. Our results indicate that firms with ICMWs are more likely to violate the FCPA and firms with multiple ICMWs have a higher likelihood of violating the FCPA than firms with fewer ICMWs. Further, firms with ICMWs related to the risk assessment, control environment, and control activities components of internal controls (based on the COSO Internal Control—Integrated Framework) present a higher risk of FCPA violations than firms without ICMWs in those areas. These findings substantiate the importance of effective internal controls in supporting firms' regulatory compliance. JEL Classifications: M42; M48; D73.
This study seeks to examine the genetic basis of deception detection performance using the classi... more This study seeks to examine the genetic basis of deception detection performance using the classic twin study design. A synthesis of current literature on twin studies and deception detection suggests a genetic basis for deception detection performance may exist. An experiment was conducted to examine the genetic basis for deception detection, and the moderating effect of training on improvement in deception detection performance. One hundred and ninety two twins participated in the experiment, with 65 pairs of monozygotic (MZ; identical) twins and 31 pairs of dizygotic (DZ; fraternal) twins. Performance on a series of deception detection tasks revealed that variability in deception detection performance was largely determined by shared and non-shared environmental influences. Moreover, declarative training significantly moderated change in deception detection performance. Implications of these findings are discussed with respect to both academic research and fraud prevention practices.
ABSTRACT: Researchers are assessing the viability of automating deception detection in TAC (text-... more ABSTRACT: Researchers are assessing the viability of automating deception detection in TAC (text-based, asynchronous, computer-mediated) messages. Viability is conditional on whether deceivers incorporate different features in their TAC messages than truth tellers do and on whether these differentiating features support deception indicators suitable for automation. We propose that deceivers incorporate different features in their messages to realize impression-management goals. They avoid message features people associate with lying (defensive-targeted features) and include message features people associate with truth telling (promotive-targeted features). In a series of three studies, we assessed features that may be part of deceivers' impression-management strategies and then assessed whether deceivers' messages contain different levels of these features than truth tellers' messages. The results show that deceivers construct different messages than truth tellers do and...
The study experimentally examines the usability of a participant's writing style in email inq... more The study experimentally examines the usability of a participant's writing style in email inquiries for fraud (misrepresentation) risk assessment by determining whether auditors can detect appropriate language-based risk factors in an email. The results suggest risk factors are present in emails, but auditors fail to use them for risk assessment. For example, shorter emails arouse skepticism when, in fact, this language feature is an insignificant risk factor. More fitting linguistic-based risk factors are lack of specifics and overuse of qualitative descriptions. Guidance may improve auditors' recognition of appropriate linguistic-based risk factors in email text. Alternatively, risk factors may be too vague to perceive, suggesting a need for techniques to strengthen them in an email inquiry.
Review of Business Information Systems (RBIS), 2011
Trust seals provide a business assurance service in e-commerce. Vendors employ trust seals to inc... more Trust seals provide a business assurance service in e-commerce. Vendors employ trust seals to increase the perception of their trustworthiness. In this paper, we create an analytical framework that we use to group trust seals into five categories: (1) comprehensive certificate provider, (2) seller evaluation service, (3) market evaluator, (4) market assurance service, and (5) niche service. Our framework provides an easy means for online shoppers to differentiate trust seals and motivate seal providers to develop new services.
SYNOPSIS:This study examines the association between chief executive officer (CEO) age and the fi... more SYNOPSIS:This study examines the association between chief executive officer (CEO) age and the financial reporting quality of firms. The financial reporting qualities examined are the meeting or beating of analyst earnings forecasts and financial restatements. Based on extant research, we hypothesize that older CEOs are associated with higher-quality financial reporting. Using a sample of 3,413 firms for the period 2005 to 2008, we find a positive association between CEO age and financial reporting quality. Specifically, we find that CEO age is negatively associated with firms meeting or beating analyst earnings forecasts and financial restatements. Our study therefore extends the corporate governance and financial reporting quality literature by identifying CEO age as a determinant of financial reporting quality.Data Availability: Data are publicly available.
This study investigates the relationship between national culture and the magnitude of occupation... more This study investigates the relationship between national culture and the magnitude of occupational fraud. Guided by national culture theory and economic theory of crime, we propose that a country's culture, as measured by Hofstede's six national culture dimensions—power distance, individualism, achievement orientation, uncertainty avoidance, long-term orientation, and indulgence—is related to the magnitude of occupational fraud. Further, we propose that the type of fraud moderates this relationship. We test these effects using a two-level model on a dataset of 2,898 occupational fraud cases across 41 countries. We find that uncertainty avoidance and long-term orientation display significant positive associations with occupational fraud magnitude (while power distance and achievement orientation display marginally significant positive associations). Further, the effects of achievement orientation, uncertainty avoidance, and indulgence are moderated by fraud type (while power...
Trust seals are business assurance service in e-commerce. Vendors apply for trust seals to increa... more Trust seals are business assurance service in e-commerce. Vendors apply for trust seals to increase their trustworthiness. In this paper, we classify trust seals in five different categories: (1) comprehensive certificate provider, (2) seller evaluation service, (3) market evaluator, (4) market assurance service, and (5) niche service. We derive the five categories through three steps: (1) reviewing literature, (2) examining c-commerce processes, and (3) reviewing seal providers’ documents. Our framework and analytical process can help e-commerce consumer to differentiate different types of seals and inspire seal provider to develop new services. We also identify many research opportunities for academics.
Purpose Deception detection is instrumental in business management but professionals differ widel... more Purpose Deception detection is instrumental in business management but professionals differ widely in terms of deception detection performance. The purpose of this paper is to examine the genetic basis of deception detection performance using the classic twin study design and address the research question: how much variance in individual differences in deception detection performance can be accounted for by the variance in genetics vs environmental influences? Design/methodology/approach In total, 192 twins, with 65 pairs of monozygotic (identical) twins and 31 pairs of dizygotic (fraternal) twins participated in an experiment. A series of behavioral genetic analyses were performed. Findings The variability in deception detection performance was largely determined by differences in shared and non-shared environments. Research limitations/implications The subjects were solicited during the Twins Days Festival so the sample selection and data collection were limited to the natural settings in the field. In addition, the risks and rewards associated with deception detection performance in the study are pale in comparison with those in practice. Practical implications Deception detection performance may be improved through training programs. Corporations should continue funding training programs for deception detection. Originality/value This is the first empirical study that examines the complementary influences of genetics and environment on people’s ability to detect deception.
This study is the first to empirically investigate the relationship between national culture and ... more This study is the first to empirically investigate the relationship between national culture and fraud. We develop and test hypotheses with regard to the relationship between each of Hofstede’s six...
Research suggests that interviewers' judgments about an interviewee's truthfulness are to... more Research suggests that interviewers' judgments about an interviewee's truthfulness are too unreliable to be useful for important decisions such as fraud risk assessment. The present study examines whether interviewers can distinguish falsifiers from truth-tellers. In an experiment, accounting students (n = 66) interviewed either a falsifying or truth-telling interviewee. Those who interviewed a falsifier perceived the interviewee as thinking harder and less forthcoming, and the interviewer expressed a stronger belief that the interviewee had lied (Lying). A logistic regression function accurately detected more falsifiers with the interviewee's perceptions of thinking hard and forthcomingness as predictors than with Direct Lying assessments. These findings suggest that interviewers know more about an interviewee's lying than they convey in a direct lying assessment. Hence, interviewers may have insight about an interviewee's appearance that can improve evaluations...
This study models the process by which auditors draw a suspicion of lying from an interviewee'... more This study models the process by which auditors draw a suspicion of lying from an interviewee's behavior and tests the model with perceptions and beliefs collected from 147 auditors after they observed an interview. An understanding of the way auditors become suspicious of lying may lead to improvements in their deception‐detection training. The proposed structural model includes impressions of the interviewee as intervening variables between perceptions of behavior and suspicion of lying. It was evaluated using SEM. The results show the instrumentality of two impressions, uneasiness and non‐informativeness. An additional finding is that mental stress, which can be more intense for liars than for truth tellers, is not a suspicious behavior. Auditors may disregard signs of mental stress because interviewees typically have to answer thought‐provoking questions, thereby confounding the mental stress of lying with the mental stress of the interview.
Review of Business Information Systems (RBIS), 2011
We report on an experimental study of the impact of outcome bias and accountability on documentat... more We report on an experimental study of the impact of outcome bias and accountability on documentation decisions. The subjects, working on an information system development project, decided on how much of the process details (both good and bad) known only to the project team, would be made part of an intra-organizational knowledge database. We find that outcome bias has a significant influence on decisions. Managers of failure projects were more inclined to report more of the bad process details than managers of successful projects, consistent with attribution theory.
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