Management Accounting Section Midyear Meeting

The Impact of Integrity-Emphasis in Parent Corporate Values and Subsidiary Managers’ Value Misalignment on Financial Advisers’ Misconduct

• In Event: Spillover Effects

Abstract

We examine how two important elements of the management control system impact financial adviser misconduct at subsidiaries of public financial institutions. Specifically, we expect that the presence of integrity in the parent’s corporate values is associated with reduced adviser misconduct across that parent’s subsidiaries. We also expect that subsidiary managers’ personal alignment with integrity as a value tempers the impact of integrity on their subordinates’ misconduct. Results confirm our predictions and suggest that integrity-emphasis in a parent’s corporate values is associated with reduced adviser misconduct throughout the parent’s subsidiaries. Further, we find that misconduct among a subsidiary’s management team tempers the effect of integrity-emphasis on adviser misconduct. Our findings highlight the importance of an understudied but ubiquitous culture control, corporate values, as well as the challenge of aligning controls throughout an organization’s hierarchy.

Authors

• Steve Kaplan, Arizona State University

• Serena Loftus, Kent State University

• Qi-Yuan (Rachel) Peng, University of Dayton

• Rui-Zhong Zhang, Kent State University