Accounting researcher studies why executives behave badly

Associate professor Robert Davidson seeks to find out what motivates executives in private business and industry to behave so badly so often by deceiving, committing fraud, lying and cheating. Epic poetry such as Dante’s Divine Comedy has proved to be a source of inspiration for him. Dante relegated fraudsters to the eighth circle of Hell. (Photo credit: Shawn Sprouse. Illustration used with permission from Routledge/Taylor & Francis Books Inc.)

For his scholarly research, Robert Davidson has employed licensed private investigators and through them purchased several thousand criminal background checks.

Davidson, an associate professor of accounting and information systems at Virginia Tech, studies executive behavior and its effects on the firm. His articles examining CEOs and corporate governance, culture and social responsibility have been published in the top journals in accounting and finance.

Davidson basically studies the hows and whys of executives who behave badly. Following his latest study, on the limited success of corporate mechanisms in deterring fraud, Davidson is now pondering new research questions. How boards of directors have responded to the transgressions that gave rise to the #MeToo movement, for instance.

He thinks that boards are now more alert to consumer activism, especially about the personal conduct of senior management. He would like to test “whether this increased awareness is more consistent with the traditional shareholder view of the firm and a focus on pure profit maximization than with a broader stakeholder view that considers the firm’s responsibilities to employees, the environment, and customers,” he said.

“Are these responses motivated by purely economic incentives, or is it something bigger? We might agree that holding corporate leaders to a higher standard of conduct is a good thing, but it is still valuable to understand why boards have recently become much more proactive here.”

Current events and their media coverage, Davidson said, not only give researchers a strong sense of what questions captivate the public most but also offer teachers a ready source of classroom material.

“Students are really well informed about what is going on in the world. Cases like Enron may be interesting, but if they happened 20 years ago, students rightly question how relevant they are today,” Davidson said. “The media can bring attention to interesting cases that are taking place right now, and I can have students analyze and compare them to historical data and see what has changed.”

Davidson, who grew up in Windsor, Canada, completed a bachelor’s degree in accountancy at Wayne State University in 2003. In 2011, he received an MBA and a Ph.D. at the University of Chicago, writing his dissertation on whether economic conditions and performance incentives affect the propensity to perpetrate fraud.

Organizations had less appeal as a study subject — “firms do not commit fraud, people do,” he said, and the question of who was more likely to do wrong intrigued him.

“After you research enough cases, you realize that it is about a lot more than just ethics, though ethics are important,” he said. “A lot of good people give in to pressure or make significant mistakes, and I wanted to learn about who was more likely to commit fraud.”

As for epic poetry, Davidson said he has enjoyed the stories since childhood, before perceiving their deeper meaning. The pleasure he now takes in them may also stem from the thematic connections that he senses can be made to his scholarly work. His favorite work is Dante’s Divine Comedy, specifically the second part, “Purgatorio.” “It deals more with the intentions or motives behind our actions instead of the outcomes,” he said.

The 14th-century masterpiece “shows that a lot of life takes place in moral gray areas. Dante encounters many of the presumed heroes in the ‘Iliad’ during his journey through hell,” Davidson said.

“We are skeptical when people argue that the end justifies the means, or that doing wrong for the right reasons somehow makes the behavior acceptable,” Davidson said. “Conversely, our motives have to count for something, right?

“Applied to my research, we distinguish cases of intentional manipulation (fraud) from honest errors or mistakes (negligence), and, at least legally, that distinction is meaningful.

“But from the perspective of someone victimized by fraud (or other misconduct), really how important were the motives that led to the outcome?”

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