The Effect of CSR Reporting Requirements and Organizational Identification on Financial Misreporting Open Access

Millar, Melanie Irene (2016)

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Reporting on CSR activities has become the norm rather than the exception among the largest companies in the world, and the regimes under which these companies report vary widely in the degree of regulations over this reporting. Despite this prevalence and variety of CSR reporting, relatively little is understood about how it affects other areas of the business such as financial reporting. In this study, I investigate the conditions under which voluntarily reporting on CSR activities can have the unintended consequence of morally licensing firm employees to misreport more in financial disclosures. Specifically, I find that the strength of the employees' identification with the organization moderates the effect of the CSR reporting requirement on the degree of financial misreporting. When the organization voluntarily reports on CSR, rather than reporting in compliance with a mandate, weakly identified employees misreport more. This misreporting behavior is mitigated, however, by strong organizational identification.

Table of Contents

I. Introduction. 1

II. Background and Hypothesis Development. 7

III. Method. 15

IV. Results. 19

V. Conclusion. 25

References. 30

Appendix: Instrument for the Experiment. 35

Figure 1: Graphical Depiction of Hypothesis 2 Results. 98

Figure 2: Organizational identification scale adapted from Mael and Ashforth 1992. 99

Figure 3: Pay-off matrix to the participants and stakeholders for each reporting decision. 100

Table 1: The Effect of CSR Disclosure Type on the Reporting Decision. 101

Table 2: The Interactive Effect of CSR Disclosure Type and Organizational Identification on the Reporting Decision: Analysis of Covariance. 102

Table 3: The Interactive Effect of CSR Disclosure Type and Organizational Identification on the Reporting Decision (median split). 103

Table 4: Self-Concept and the Reporting Decision. 105

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