How Leaders Influence (un)Ethical Behaviors within Organizations: A Laboratory Experiment on Reporting Choices

Mario Daniele Amore, Orsola Garofalo, Alice Guerra*

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

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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.
Original languageEnglish
JournalJournal of Business Ethics
Number of pages17
ISSN0167-4544
DOIs
Publication statusPublished - 16 Mar 2022

Bibliographical note

Epub ahead of print. Published online: 13 Mar 2022.

Keywords

  • Financial reporting
  • Ethical leadership
  • Leaders
  • Fraudulent behavior
  • Cheating

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