It's Not Always Black and White—Identifying Managers Who Perceive and Use Ambiguity in Accounting to Their Advantage

• In Event: Decision-Making in the Presence of Ambiguity and Uncontrollable Events

Abstract

Prior research suggests that ambiguous situations offer an opportunity for managers to make self-serving decisions. We extend this research by identifying managerial characteristics that are associated with enhanced perceptions of ambiguity in accounting standards. Specifically, we find that managers with higher [lower] narcissism and higher [lower] construal mindset perceive accounting standards to be more (less) ambiguous. We also document the pervasive impact that impulsivity registers in moderating the influences of mindset and narcissism. In doing so we help explain recent, novel findings in psychology research. Supplemental path analysis further documents that perceived ambiguity is a significant mediating factor between these trait characteristics and self-serving earnings management choices. Our findings not only contribute to a better understanding of who may be more inclined to engage in untoward decision-making but also may prove useful in corporate governance.

Authors

• Valerie Chambers, Weber State University

• Philip M J Reckers, Arizona State University - Tempe

• Stacey M Whitecotton, Arizona State University - Tempe