Toward resolving the debate surrounding slippery slope versus licensing behavior: The importance of individual differences in accounting ethical decision making

A great deal of attention, research and print space has been devoted to the role of the “slippery slope” in corporate malfeasance. Slippery slope refers to a pattern of behavior in which small unethical infractions lead to more egregious behaviors over time. In accounting, this escalation can relate to increasing dollar amounts or engaging in different behaviors reflecting increasing degrees of ethical grayness. Much of corporate malfeasance indeed relates accounting practices: theft fraud (Wells 2000, 2001a, 2001b, 2002) or fraudulent financial reporting (e.g., AIG, 2005; Bernie Madoff, 2008; Enron, 2001; Diamond Foods, 2012; HealthSouth, 2003; Lehman Brothers, 2008; Saytam, 2009; WorldCom, 2002). More recent research on compensatory ethics in psychology and business, however, has shown conflicting findings: that performing an initial unethical act can create an internal incentive to end or curtail subsequent unethical behavior; this behavior has also been referred to as a “licensing effect”, in which bad behavior is limited in how much individuals can license and still preserve their reputation or moral identity (Beaman et al., 1983; Brown, Rennekamp, Seybert, & Zhu, 2014; Freedman and Fraser, 1966; Gino and Bazerman, 2009; Joosetn et al., 2014; Murphy & Dacin, 2011; Zhong et al., 2010). It is our belief that both theories may be found to co-exist in accounting practice depending on individual characteristics. We conduct two studies to examine the role of individual differences in instances of malfeasance specifically related to accounting practices, heretofore largely ignored in the accounting literature. In Study One, we investigate the role of locus of control (Rotter, 1966) and negative affect (Crawford and Henry, 2004; Lowe and Reckers, 2012; Watson and Tellegen, 1985). In Study Two, we examine narcissism (Johnson et al., 2013; Little et al., 1992; Young et al., 2015) and moral disengagement (Bandura, 1999; Detert et al., 2008). Findings confirm hypotheses that both slippery slope and licensing patterns of behavior will manifest depending on individual differences among the participants.