Management Accounting Section Midyear Meeting

Under Pressure: Overproduction by Newly Appointed CEOs and Organizational Misconduct

• In Event: Top Executive Performance and Pay

Abstract

We investigate the effect of overproduction by newly appointed CEOs on employment- and safety-related organizational misconduct. Newly appointed CEOs face performance pressure. To manage their reputation and market expectations, they may engage in overproduction to manage earnings upwards. We predict that such overproduction in turn puts employees under pressure, who may respond by “cutting corners” and increasing their workload, resulting in higher organizational misconduct. We further predict that over time, this might lead to changes in social norms within the organization, resulting in an increase of future misconduct and a slippery slope, i.e. an increase of the average severity of future misconduct. Controlling for previous levels of misconduct, we find effects consistent with our predictions for the both the prevalence and severity of future misconduct. Additionally, we find evidence for the presence of a slippery slope. In additional analyses, we show results for situations in which CEO pressure may have a differential effect on social norms.

Authors

• Jan Lampe, WHU - Otto Beisheim School of Management

• Utz Schaeffer, WHU-Otto Beisheim School of Management

• Daniel Schaupp, WHU-Otto Beisheim School of Management