BAD APPLES & BAD BARRELS: INVESTIGATING IMPACT OF PERSONALITY AND ETHICAL CULTURE ON CREATIVE ACCOUNTING

Abstract

Creative accounting practices represent a sophisticated form of financial manipulation that exploits the regulatory flexibility to portray a desired financial image. While historically viewed through lens of Agency Theory and external pressures, this study shifts the focus to internal psychological drivers of such behavior. Specifically, it investigates the influence of Big Five personality traits on the propensity of the accounting professionals in Pakistan to engage in the CAP, while examining the mediating role of the Organizational Ethical Culture (OEC). Thus, adopting a positivist research philosophy and a quantitative cross-sectional design, data were collected from 314 professional accountants (CA, ACCA, and MBA) across corporate sector of Pakistan. The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM). The findings provide empirical evidence that unethical financial behavior is a function of both individual "bad apples" (personality) and "bad barrels" (organizational culture). The study offers critical insights for the regulatory bodies like the Securities and Exchange Commission of Pakistan (SECP) along with HR practitioners, advocating for the integration of psychological profiling in recruitment and consequently the fostering of the robust "tone at the top" to mitigate financial malfeasance.