Managerial Motivations in Fraudulent Financial Reporting According to Cumulative Perspective Theory

Document Type : Research Paper

Authors

1 Prof., Department of Accounting, Faculty of Management and Accounting, Allameh Tabataba'i University, Tehran, Iran,

2 Ph.D. Candidate, Department of Accounting, Faculty of Management and Accounting, Allameh Tabataba'i University, Tehran, Iran.

Abstract

Objective: The purpose of this study is to answer the question of whether the four management attitudes toward risk, which is related to the Cumulative Prospect Theory, is effective in the occurrence of fraudulent financial reporting or not.
Methods: To determine the role of cumulative perspective theory in the occurrence of fraudulent financial reporting, two hypotheses were tested and for this purpose, the annual data of 127 companies listed on the Tehran Stock Exchange during the period 2009 to 2018 were analyzed through ranked logistic regression analysis.
Results: The findings of this study confirm the first and second hypotheses of the research on the effect of management's attitude towards risk in the occurrence of fraudulent financial reporting. Overall, the findings of this study show that fraudulent financial reporting follows four patterns of risk attitude, in other words, when the probability of reference profit or the probability of reference loss is high, the probability of fraudulent financial reporting increases, but if the probability of reference profit is high or The lower the probability of reference losses, the lower the likelihood of fraudulent financial reporting.
Conclusion: If the probability of change in profit or loss is small, the manager's attitude towards risk can change direction. In other words, if the probability of profitability increases, the manager reduces his risk-taking slightly instead of changing his attitude from risk-taking to risk-aversion. Therefore, it can be argued that the likelihood of fraudulent financial reporting can change "without changing the manager's attitude towards risk" (from risk-taking to risk-aversion)

Keywords

References

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Accounting and Auditing Review
Volume 28, Issue 4
2021
Pages 598-615

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