Stressed About Money: The Effect of Employee Financial Pressure on the Quality of Accounting Practices

• In Event: Audit Quality and Office Growth

Abstract

This study investigates the effect of employee financial pressure on work performance quality in accounting setting. Despite the prevalence of financial pressure and stress among employees, few studies attempt to analyze its implications on employee performance. Stress factors that cause anxiety results in emotional exhaustion and reduced job performance. The conservation of resources theory (COR; Hobfoll 1989) predicts that anxiety and financial stress decrease performance level of employees because anxiety drains individuals’ physical, cognitive and psychological resources, which affects employees’ work quality. Motivated by the conservation of resources theory, I expect that employee financial pressure negatively affects the quality of accounting practices. Consistent with this prediction, I determine that employee financial pressure is positively associated with material internal control weaknesses and restatements. The results are statistically and economically significant. The results continue to hold after addressing the managers’ financial stress. I conduct additional analyses to address endogeneity issues using two-stage least squares regression and the inferences remain the same.

Author

• Babak Mammadov, Clemson University