Do Ethical Climate and Machiavellianism Affect Ethical Perceptions of Earnings Management? Evidence from Indonesia

Objective – The purpose of this paper is to examine whether both ethical climate and Machiavellianism influence ethical perceptions of earnings management. Methodology/Technique – The authors surveyed 143 managers, internal auditors, supervisors, finance and accounting staffs employed by listed companies in Indonesia. Findings – The results show that ethical climate negatively affects ethical perceptions of earnings management. Inconsistent with the expectations, Machiavellianism does not influence ethical perceptions. In addition, the results of the indirect effects analyses did not support the mediating effect of ethical climate and Machiavellianism on ethical perceptions through the perceived importance of ethics and social responsibility. Novelty – To our knowledge, this is the first study to address the direct and indirect effect of ethical climate and Machiavellianism on ethical perceptions of earnings management among private industries' employee in Indonesia. The findings have important implications, suggesting that organizational efforts to enhance the ethical climate may actually increase employees' perceptions of the importance of corporate ethics and social responsibility to organizational success. Moreover, by enhancing ethical climate in an organization that encourages ethical behavior may lead employees to be more critical to earnings management. Type of Paper: Empirical