The Effects of Organizational Risk Appetite and Social Pressure on Aggressive Financial Reporting Behavior

This study uses an experiment to investigate how an organization's risk appetite statement (conservative versus aggressive) and source of social pressure (conformity pressure from a peer versus obedience pressure from a superior) combine to influence management accountants' aggressive financial reporting behavior. Specifically, we focus on whether social pressure arising from a superior relative to pressure from a peer may undermine a conservative risk appetite. We find that management accountants' aggressive financial reporting judgments are more responsive to obedience pressure relative to conformity pressure in the presence of a conservative risk appetite, which suggests that pressure from a superior may reduce the effectiveness of a conservative risk appetite. Our study contributes to understanding how factors at the individual, social, and organizational level combine to influence management accountants' aggressive financial reporting behavior.