While it takes a healthy dose of confidence to reach the topranks of corporate management, as it underlies decisive and strong leadership,too much confidence can lead managers to go too far and potentially commit fraud, newresearch by the University of Pennsylvania’s Wharton School finds.
In a developing paper titled “Executive Overconfidence and theSlippery Slope to Fraud,” Wharton accounting professor Catherine M. Schrand anddoctoral student Sarah L.C. Zechman examine patterns in frauds to determinewhether or not some evolve because executives are simply too optimistic thatthey can make major changes in their firms, rather than out of pureself-interest.
The research combines results from the psychology literatureand enforcement records from the Securities and Exchange Commission, and looksat how top executives might be inclined to engage in fraudulent behavior becausethey are overconfident about their firm’s ability to perform.
“The main question is whether we can explain fraudulentbehavior using knowledge about human decision making,” Schrand said in astatement. “Some fraudulent behavior is the outcome of managers putting themselvesin the position where fraud is their only choice. They didn’t start outthinking they would commit fraud and they were not necessarily trying to hurtanyone, but they ended up being in a position where they felt it was the onlyway to get out of a bad situation.”