Behavioral Research In Accounting Volume 15, 2003 Printed in USA
Auditor Acceptance of Dysfunctional Audit Behavior: An Explanatory Model Using Auditors’ Personal Characteristics David P. Donnelly University of Nevada, Las Vegas Jeffrey J. Quirin Wichita State University David O’Bryan Pittsburg State University
ABSTRACT Dysfunctional behavior (DB) and staff turnover are associated with decreased audit quality (Public Oversight Board 2000). Dysfunctional behaviors such as premature sign-off, gathering of insufficient evidence, altering or replacing audit procedures, and underreporting of time have negative effects on the auditing profession. While recent studies suggest that dysfunctional behavior is a widespread problem (Smith 1995; Otley and Pierce 1995), extant research fails to adequately explain the causes. In this study, the organizational behavior and industrial psychology literatures provide the basis for developing and testing a model that identifies locus of control, performance, and turnover intentions as determinants of auditor acceptance of DB. Using a cross-organizational design and a structural equation modeling technique, survey results from 106 auditors generally support the explanatory model. Results indicate that auditors who are more accepting of DB tend to possess an external locus of control, report lower levels of self-rated performance, and exhibit higher turnover intentions. These results suggest that individual auditor characteristics play a role in identifying those who are more accepting of DB.
INTRODUCTION Under the guidance of former chairman Arthur Levitt, the SEC has vigorously advocated improvements in the auditing process and Data available upon request.
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profession (SEC 2000; SEC 1999). At the urging of the SEC, the Panel on Audit Effectiveness was established by the AICPA Public Oversight Board to examine the issue of audit quality. The Panel gathered information from peer reviews and surveys of financial executives, internal auditors, and external auditing professionals. Their findings indicate that dysfunctional audit behavior is a continuing concern for the auditing profession (Public Oversight Board 2000). A survey of Big 6 audit seniors confirms these concerns. Eighty-nine percent of the respondents admitted to engaging in some form of audit quality reduction behavior (e.g., premature sign-off) and estimated that time underreported was equal to approximately 12.2 percent of hours accurately recorded (Otley and Pierce 1995). Moreover, recent, highprofile audit failures, most notably Enron, have created intense public pressure for improvements in the auditing process and profession. Based on its findings, the Panel on Audit Effectiveness recommended that managing the potential risks from excessive time pressures on audit teams must be a high priority for audit firms (Public Oversight Board 2000). It also recommended that firms assess the extent of time pressures on the audit engagements and the firms’ success in managing those pressures. Finally, the Panel urged firms to provide guidance and training on actions that engagement partners and other supervisory personnel should consider in managing time pressures. These concerns have not been ignored in the academic literature. The underlying premise of related academic research (e.g., Otley and Pierce 1995; Lightner et al. 1983; Alderman and Deitrick 1982) has been that dysfunctional audit behavior is a reaction to the environment (i.e., the control system). These behaviors can, in turn, have both direct and indirect impacts on audit quality. Behaviors that directly affect audit quality include premature signing-off of audit steps without completion of the procedure (Otley and Pierce 1995; Rhode 1978; Alderman and Deitrick 1978), gathering of insufficient evidential materials (Alderman and Deitrick 1982), processing inaccuracy (McDaniel 1990), and the omission of audit steps (Margheim and Pany 1986). Underreporting of audit time has also been shown to have an indirect impact on audit quality (Smith 1995; Kelley and Margheim 1990; Lightner et al. 1982). Underreporting time leads to poor personnel decisions, obscures the need for budget revision, and results in unrecognized time pressures on future audits. Prior literature has identified environmental factors (e.g., time pressure, supervisory style) that contribute to dysfunctional behavior (DB). However, extant literature has not found that individual differences among auditors significantly affect DB (Malone and Roberts 1996). The disturbingly high level of DB associated with the auditing
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profession (Otley and Pierce 1995), the practical implications of determining what factors lead to DB, and the inadequacy of extant literature to identify and explain these factors, calls for additional research examining these topics. The purpose of this study is to investigate factors contributing to individual auditor differences in acceptance of DB. Identifying the factors that contribute to an auditor’s attitudinal acceptance of DB can be regarded as an important first step in ascertaining the determinants of actual dysfunctional behavior. To this end, an explanatory model was developed that relates locus of control, self-rated performance, and turnover intentions to auditors’ acceptance of three common DBs. Specifically, it is hypothesized that auditors with an external locus of control, lower self-rated performance, and higher turnover intentions are more accepting of DB. Using a cross-organizational design and a structural equation modeling technique, results of an analysis of 106 auditors generally support the proposed explanatory model. Results indeed indicate that individuals who are more accepting of DB do tend to possess an external locus of control, report lower levels of self-rated performance, and exhibit higher turnover intentions. The remainder of this paper is organized into four sections. The first section presents the theoretical development, while the second section discusses the research method including data collection and measurement information. In the third section, empirical results are presented. The final section concludes with a discussion and limitations.
THEORETICAL DEVELOPMENT Auditor acceptance of DB is likely to contribute to an environment in which DB occurs more frequently. To further our understanding of the underlying factors contributing to DB, this section develops a theoretical model linking locus of control, self-rated performance, and turnover intentions to auditor acceptance of DB. These linkages are referred to as the direct associations. Additional, indirect effects are also discussed followed by a formal presentation of the research hypotheses. The full theoretical model appears in Figure 1. Direct Associations with DB Locus of Control and Auditor Acceptance of Dysfunctional Behavior Locus of control, a concept developed by Rotter (1966), has been used extensively in behavioral research to explain human behavior in organizational settings. Rotter (1966) suggests that individuals develop generalized expectations concerning whether success in a given situation will be contingent on their own personal behavior or controlled by external forces. Individuals who tend to associate outcomes
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FIGURE 1 Theoretical Model
Performance H2 – – – + Locus of Control
+
H3 +
Turnover Intentions
–
Acceptance of Dysfunctional Behavior
–
Organizational Commitment
H1 +
with their own efforts or believe that events are under their own control are referred to as internals. Externals are those who believe that they cannot control events or outcomes (Spector 1982). Thus, internally and externally directed people can encounter identical situations, yet perceive that their actions will have quite different impacts on their lives. Studies have shown a strong, positive correlation between an individual’s external locus of control and a willingness to use deception or manipulation to achieve personal objectives (Gable and Dangello 1994; Comer 1985; Solar and Bruehl 1971). Based on a meta-analytic review of 20 studies examining this relation, Mudrack (1989) concluded that the use of manipulation, deception, or ingratiation tactics may reflect an attempt on the part of externals to assert some influence over a hostile environment that lends itself as more suitable to internally oriented approaches, such as hard work. In situations where externals are unable to obtain the reinforcements needed for survival, they view manipulation of others as a necessary defense (Solar and Bruehl 1971). Furthermore, this behavior is most likely to manifest itself in situations where the employee perceives a high degree of structure or supervisory control (Gable and Dangello 1994).
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In an auditing context, manipulation or deception will manifest itself in the form of DB. These behaviors are means for the auditor to manipulate the audit process in order to achieve the individual’s performance objective. The reduction in audit quality resulting from these actions may be viewed as a necessary sacrifice in order for the individual to survive in the audit environment. It is expected that the higher the individual’s external locus of control the more likely he/ she is to accept DB. Employee Performance and Auditor Acceptance of Dysfunctional Behavior There is no conclusive evidence on the association between performance and dysfunctional behavior in general. This is expected given that the purpose of the dysfunctional act is to often manipulate the performance measure, making it difficult to obtain a true performance indicator. However, there is theoretical support that dysfunctional behavior is more likely to occur in situations where the individual’s self-perception of performance is lower. The literature suggests that dysfunctional behavior occurs in situations where individuals see themselves less capable of achieving the desired or expected outcome through their own efforts (Gable and Dangello 1994). In a similar study, Solar and Bruehl (1971) stated that individuals who perform at levels below personal or supervisor expectations are more likely to engage in dysfunctional acts since they do not see themselves achieving the reinforcements necessary for survival in the organization through their own efforts. Thus, dysfunctional behavior is viewed as necessary in situations where organizational and/or personal goals cannot be achieved through typical means of performance. This relation is considered stronger in environments perceived by the employee to have high structure or supervisory control (Gable and Dangello 1994). The use of audit programs, time budgets, and close supervision could cause the audit process to be perceived as a highly structured environment. Therefore, auditors having a lower perception of their performance level are expected to exhibit a higher acceptance of DB. Turnover Intentions and Auditor Acceptance of Dysfunctional Behavior Malone and Roberts (1996) suggest that auditors with intentions to leave the firm could be more willing to engage in dysfunctional behaviors due to the decreased fear of possible termination if the behavior were detected. Furthermore, individuals intending to leave the firm are arguably less likely to be concerned with the potential adverse impact of dysfunctional behaviors on performance appraisal and promotion. Thus, auditors possessing higher turnover intentions may be more accepting of dysfunctional behaviors.
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Indirect Associations Incorporating the interrelationships among locus of control, selfrated performance, and turnover intentions can provide a better understanding of the complex causes of DB. Additionally, existing literature indicates that organizational commitment may also play a prominent role in this study’s theoretical model through its effect on self-rated performance and turnover intentions. Thus, a discussion of these associations follows. Locus of Control and Employee Performance Prior research shows that locus of control is significantly related to performance. Internals tend to exert greater effort than externals when it is believed that effort leads to rewards (Spector 1982; Majumder et al. 1977; Phares 1976). Internals exhibit better learning, problem-solving skills (Phares 1976; Wolk and DuCette 1974; DuCette and Wolk 1973), and use of information (Phares 1968). In studies of career effectiveness, locus of control has been linked to promotion and salary decisions (Andrisani and Nestle 1976; Heisler 1974). The differences between internals and externals make each better suited for certain types of positions. Therefore, the relation between locus of control and performance is dependent upon the assigned task. Spector (1982, 486) suggests that: Internals are best suited for highly technical or skilled jobs, professional jobs, and managerial or supervisory jobs. Externals would be more suited to factory line jobs, unskilled labor jobs, clerical jobs and jobs of a routine nature.
The investigation of the role of locus of control in the accounting literature has been somewhat limited. Locus of control was identified as a moderator in the participation/performance association in several earlier participative budgeting studies (Frucot and Shearon 1991; Licata et al. 1986; Brownell 1981). In an audit setting, it has received only recent attention. Hyatt and Prawitt (2001) provide some evidence that internal locus of control is associated with enhanced performance. Because of the technical and professional natures of the auditing work environment and consistent with prior findings, internals should perform at a higher level than externals in an auditing setting. Locus of Control and Turnover Intentions Several studies have found a significant relation between an internal locus of control and job tenure showing internals are less prone to turnover than externals (Andrisani and Nestle 1976; Organ and Greene 1974; Harvey 1971). Given the technical and professional natures of the auditing profession, internals are expected to be better
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suited for positions in an audit setting, while externals are more likely to experience greater job-related conflict. It is hypothesized that this inherent difference between internals and externals will manifest itself in the auditing profession via turnover intentions. Specifically, externals are expected to exhibit higher levels of turnover intentions. Employee Performance and Turnover Intentions Employee performance as an antecedent to turnover has received considerable attention. Although it has been argued that superior performers have greater opportunities and are therefore more likely to turnover (Price 1977), recent studies suggest this may not be the case. In fact, superior performers have been found to be more likely to be promoted and to stay with their respective organizations than poor performers (Vecchio and Norris 1996; Wells and Muchinsky 1985; Dreher 1982). The results of a 24 study meta-analysis performed by McEvoy and Cascio (1987) found turnover to be lowest among the best performers. Given the promotion/tenure nature of public accounting, one would expect this type of relation to exist. Auditors who exhibit high levels of performance are promoted, while those who are unable to attain minimum performance standards are eventually forced out of the organization. Based on these findings, it is expected that performance will be inversely related to turnover intentions. Locus of Control and Organizational Commitment Locus of control has been found to be an antecedent to organizational commitment (Luthans et al. 1987; Kinicki and Vecchio 1994). In theory, committed employees should work harder, remain with the organization, and contribute more effectively to an organization (Mowday et al. 1979). Internals perceive that they have more opportunities than do externals (Spector 1982). Therefore, when internals join a firm, they tend to have a higher commitment to that choice relative to externals (Luthans et al. 1987). During their tenure with an organization internals will similarly perceive alternatives exist in the job market and by virtue of their remaining with an organization will develop greater organizational commitment (Spector 1982). In contrast, externals perceive fewer choices and are less likely to act on these choices. That is, externals may feel they have no choice but to stay with the current company, while internals make an active choice to remain and subsequently increase their commitment to the organization. Organizational Commitment and Employee Performance Numerous studies have viewed organizational commitment as an antecedent to performance (Randall 1990). Work by Mowday et al. (1974) suggests that highly committed employees perform better than
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less committed ones. Ferris (1981) found that the performance exhibited by junior-level professional accountants was, in part, affected by their level of organizational commitment. Similarly, in a study of the determinants of auditor performance, Ferris and Larcker (1983) indicated that an auditor’s performance was, in part, a function of organizational commitment. More recently, Nouri and Parker (1998) found that organizational commitment positively affected performance. The results of a meta-analysis by Randall (1990) reveal that organizational commitment has a positive association with employee performance, but that this relation is small. In the current study, employees with greater commitment are expected to exhibit better performance. Organizational Commitment and Turnover Intentions Organizational commitment has often been used as an antecedent in studies predicting withdrawal behaviors. Mowday et al. (1982) predicted and found that the strongest and most predictable behavioral consequence of organizational commitment was lower turnover rates. Results of the Mathieu and Zajac (1990) meta-analysis illustrate that organizational commitment is positively associated with attendance and negatively associated with lateness and turnover. In addition, organizational commitment demonstrated a larger association with turnover-related intentions, including intention to leave one’s job. Formal Hypotheses Based on the preceding discussion of the direct and indirect associations, testable hypotheses of the theoretical model follow and are highlighted in Figure 1: H1: There is a positive association between external locus of control and acceptance of dysfunctional behavior in an auditing setting. H2: There is a negative association between employee selfrated performance and acceptance of dysfunctional behavior in an auditing setting, conditioned by locus of control and organizational commitment. H3: There is a positive association between turnover intentions and acceptance of dysfunctional behavior in an auditing setting, conditioned by self-rated performance, locus of control, and organizational commitment.
RESEARCH METHOD Data Collection In order to allow for cross-organizational generalizability, data were collected using a survey questionnaire sent to a total of 205
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auditors from a cross-section of ten public accounting firms. Questionnaires were sent out to firms of a wide variety of sizes including Big 5, large international, large national, multi-state regional, single state, and single office.1 A survey instrument package was distributed to each potential respondent via an office partner and returned by the respondents directly to the researchers via mail to ensure confidentiality. Partners were instructed by the researchers to distribute the survey instruments in a random order throughout their offices.2 Accompanying each questionnaire was a cover letter containing an explanation of the research as well as instructions for completing the survey. A selfaddressed, stamped envelope was also included. Of the 205 surveys distributed, respondents returned a total of 106 usable surveys for an effective response rate of 52 percent.3 The average respondent was 28 years old and had 5 years of audit experience. Females represented approximately 47 percent of the returned instruments. Measures The variables measured in the questionnaire include locus of control, organizational commitment, self-reported employee performance, turnover intentions, and acceptance of dysfunctional behavior. While the locus of control, organizational commitment, and employee performance measures were drawn from prior literature, the dysfunctional behavior and turnover intentions instruments required development. A copy of each research instrument is reported in the Appendix. Descriptive statistics and correlations for all measures are reported in Tables 1 and 2, respectively. Locus of control was measured using a summed total of the 16item Spector (1988) work locus of control scale.4 The Spector (1988) measure has been shown to possess a strong fit to work-related outcomes (Blau 1993). Respondents were asked to identify the relations between reward/outcomes and causes using a seven-point Likerttype scale.5 Higher scores on the work locus of control scale indicate 1
2
3
4
5
The breakdown by firm type was as follows: Big 5—one; large, international—two; large, national—two; multi-state, regional—one; single-state—one; single office— three. The authors performed a follow-up phone call with each of the participating partners and verified that he/she had randomly distributed the surveys in accordance with the authors’ instructions. Of the 106 usable survey instruments returned, 39 were from staff auditors, 36 from seniors, 24 from managers, and 7 from partners. The number of surveys returned by firm type were as follows: Big 5—49; large, international—34; large, national— 12; multi-state, regional—eight; single-state—one; single office—two. The Rotter (1966) measure was not used due to its extremely general scope. Its items cut across several different domains (e.g., education, work, politics, life in general). Items 1, 2, 3, 4, 7, 11, 14, and 15 of the instrument are reverse scored.
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TABLE 1 Descriptive Statistics
Variable
Meana
Standard Deviation
Observed Range
Cronbach Alpha
Locus of Control Organizational Commitment Employee Performance Turnover Intentions Acceptance of Dysfunctional Behavior Audit Experience
42.91 47.02 36.83 11.36 31.02
9.34 9.25 5.01 5.10 11.40
20–68 14–63 11–47 3–21 12–67
0.83 0.92 0.82 0.91 0.87
5.13
5.84
0.5–27
—
a
Mean values represent the mean of each summed instrument with the exception of the audit experience variable, which simply represents the mean number of years.
TABLE 2 Correlation Matrix
Locus of Control (1) (1) 1.000 (2) ⫺0.421** (3) ⫺0.125 (4) 0.417** (5) 0.351**
Acceptance of Organizational Employeee Turnover Dysfunctional Behavior Commitment Performance Intentions (5) (2) (3) (4) 1.000 0.363** ⫺0.651** ⫺0.286*
1.000 ⫺0.338** ⫺0.276*
1.000 0.333**
1.000
n ⫽106 *, ** p ⬍ .01 and p ⬍ .001, respectively (one-tailed significance).
a greater degree of external personality, while lower scores are associated with internal traits. The instrument’s reliability and validity have been deemed acceptable in prior research (e.g., Blau 1993; Spector 1988). In the current study, the Cronbach alpha was 0.83. A summed total of Mowday et al.’s (1979) nine-item short-form instrument was used to measure organizational commitment. The instrument was written in a seven-point Likert-type format ranging from 1 ⫽ strongly disagree to 7 ⫽ strongly agree. A response of 7 indicates a high level of organizational commitment. Prior studies report acceptable levels of reliability and validity for the nine-item instrument (e.g., Blau 1987; Nouri and Parker 1998). In this study, the Cronbach alpha was 0.92.
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Employee performance was measured using a modified version of Mahoney et al.’s (1963, 1965) multi-dimensional nine-item scale. Respondents were asked to evaluate their individual performance with regard to six performance dimensions, including planning, investigating, coordinating, supervising, representing, and staffing.6 Respondents were then asked to rate their overall effectiveness in the final question.7 The instrument was constructed using a seven-point Likert-type scale ranging from 1 ⫽ well below average to 7 ⫽ well above average. The instrument’s reliability and validity have been deemed appropriate in a host of prior studies including the accounting-related work of Brownell and Dunk (1991), Dunk (1989), and Brownell (1982). The Cronbach alpha for the current study was 0.82. For hypotheses testing purposes, a summed total of the six items was used. Although various forms of dysfunctional audit behavior have been discussed in the extant accounting literature (e.g., Kelley and Margheim 1990; Margheim and Pany 1986; Lightner et al. 1982; Alderman and Deitrick 1978, 1982; Rhode 1978), this study investigates the three major types of dysfunctional behavior deemed harmful to audit quality: premature sign-off, underreporting of time, and altering/replacement of audit procedures. A 12-item, three-part dysfunctional audit behavior instrument was designed to capture the required dysfunctional behavior information in an audit environment. Four items relating to each of the three types of dysfunctional audit behavior were included. The items in the instrument were designed to measure how accepting an auditor was to the various forms of dysfunctional behavior. The items were constructed on a seven-point Likert-type scale anchored by 1 ⫽ strongly disagree and 7 ⫽ strongly agree. Questions were written so that a response of 7 indicates a high acceptance of dysfunctional behavior. Respondents were asked to report their acceptance of, rather than their actual engagement in, DB for three reasons. First, SAS No. 82 recognizes that attitudes are indicators of actual behaviors (AICPA 1997). Second, evidence from Lightner et al. (1982, 1983) suggests that personal beliefs impact an auditor’s willingness to engage in DB. Those who are more accepting of a behavior were more likely to engage in the behavior (Onsi 1973). Third, logic suggests that some 6
7
The original Mahoney et al. (1963) instrument also included evaluating and negotiating dimensions. However, the authors determined that these performance dimensions were not applicable to the auditing profession. Although several studies have criticized self-reported measures of performance as unreliable due to leniency bias (e.g., Parker et al. 1959), other studies have noted that leniency bias is inconsequential unless the bias is systematically related to an independent variable (Kren 1992; Chenhall and Brownell 1988). The use of selfreported measures also minimizes the ‘‘halo’’ effect that may occur with supervisor ratings (Heneman 1974; Nealy and Owen 1970). Halo effects result from the tendency to evaluate ‘‘globally’’ or for managers to evaluate on only one cognitive dimension.
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subjects would likely hesitate to admit to engaging in DB, possibly resulting in either a nonresponse or a question of response validity (Rest 1979). A principal components, orthogonal rotation factor analysis of the dysfunctional behavior instrument indicated that all four premature sign-off items loaded above 0.5 on a single factor, all four underreporting of time items loaded on a single factor at the 0.5 level, and all four altering/replacement of audit procedure items also loaded on a single factor at the 0.5 level. Eigenvalues for the premature signoff, underreporting of time, and altering/replacement of audit procedure factors were 3.211, 2.459, and 2.069, respectively. The analysis indicated that crossloadings of the questions from the three separate factors were not problematic. Further analysis was done to ascertain the instrument’s reliability. The Cronbach alpha for the 12item measure was 0.87, while the reliability alphas for the premature sign-off, underreporting of time, and altering/replacement of audit procedure portions of the survey were 0.82, 0.92, and 0.81, respectively. For hypotheses testing purposes, a summed total of the entire 12-item instrument was used. Accounting studies have used somewhat different measures of employee turnover intentions (Scandura and Viator 1994; Aranya et al. 1982; Senatra 1980; Dillard and Ferris 1979). Given the promotion/tenure characteristics of the public accounting profession, the current study captured respondents’ immediate turnover intentions and their long-term intent. A summed, three-item turnover intentions scale assessed the respondents’ immediate turnover intentions (within 2 years), middleterm turnover intentions (within 5 years), and long-term intentions (until retirement). This multi-time period approach is supported by prior literature (Scandura and Viator 1994; Rasch and Harrell 1990; Aranya and Ferris 1984). The items were written in a seven-point Likert-type format anchored by 1 ⫽ strongly disagree and 7 ⫽ strongly agree. Items were reverse scored so that higher values indicate a higher degree of turnover intent. An analysis was undertaken to ascertain the instrument’s reliability. The resulting Cronbach alpha was 0.91. Structural Equation Modeling Structural equation analysis was used to evaluate the proposed hypotheses. Structural equation analysis, rather than moderated regression analysis or ANOVA, was used because the theoretical model presented in the study is viewed as an antecedent and consequence nomological framework for turnover intentions and acceptance of dysfunctional behavior. Use of structural equation modeling for testing of such frameworks as well as contingency-based hypotheses, like those contained in this study, has been suggested as the statistical
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method of choice in recent literature (Hartmann and Moers 1999; Shields and Shields 1998).8
EMPIRICAL RESULTS Overall Model Fit The goal of structural equation modeling is to evaluate whether associations proposed in theory, or in prior research, fit the present data set. Evidence of proper fit is provided by the Chi-square statistic and various other fit indices. However, measures of proper fit can be problematic. For example, the potential exists with small sample sizes for the Chi-square statistic to incorrectly indicate a close fit. Because the sample size used in this study is relatively small (n ⫽ 106), multiple measures of overall model fit are reported9 to lend assurance that the measures of fit produced are not spurious. This lends some assurance that the measures of fit produced are not spurious.10 Figurative depictions of the results of the structural equation analysis are presented in Figure 2. With adjusted model fit values approaching or exceeding 1.0 in all instances, the data appear to fit the model well.11 Tabular results of the structural equation analysis including a listing of each hypothesis and its corresponding path coefficient are presented in Table 3. Consistent with the high model fit indices, results in Table 3 indicate that the indirect model effects suggested by 8
An alternative to structural equation modeling is path analysis. Both statistical approaches test for the significance of individual paths like those hypothesized in this study. Unlike path analysis, structural equation modeling also provides several goodness-of-fit measures that can be used to assess overall model fit. 9 Specifically, the adjusted goodness of fit index (AGFI), the Normed Fit Index (NFI), the Non-Normed Fit Index (NNFI), and the comparative fit index (CFI) are reported. 10 The Normed Fit Index (NFI) was proposed by Bentler and Bonett (1980) as an alternative to the Chi-square test. Values of this index range from 0 to 1, with values over 0.9 indicating a good fit. This index may be viewed as the percentage of observedmeasure covariation explained by a given model. The disadvantage of the NFI is that it can underestimate goodness-of-fit in small samples. A variation of the NFI is the Non-Normed Fit Index (NNFI), which was also proposed by Bentler and Bonett (1980). This measure has been shown to better reflect model fit at all sample sizes. As with the NFI, values exceeding 0.9 indicate a relatively good fit. However, the NNFI may assume values below 0 and above 1. Bentler’s (1990) revised normed comparative fit index (CFI) is based upon the Bentler and Bonett (1980) NFI, but with a correction for sample-size dependency. CFI values always lie between 0 and 1, with values over 0.9 indicating a relatively good fit (Bentler 1990). Finally, the adjusted goodness of fit index (AGFI), devised by Joreskog and Sorbom (1984), is an additional fit index that ranges from 0 to 1, with values above 0.9 indicating acceptable fit. 11 In order to determine the extent to which the results differ by position, the authors estimated the theoretical model first with staff, seniors, and managers, but without partners, and second with staff and seniors but without managers and partners. After omitting these position levels, the overall model fit declined slightly but remained acceptable. The only path whose significance level changed was from performance to turnover intentions, which became insignificant when both managers and partners were omitted from the analysis. All other paths retained their original level of significance and sign.
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FIGURE 2 Structural Equation Model with Path Coefficients
Performance H2 –0.19** +0.05 –0.13** +0.38*** Locus of Control
+0.18**
H3 +0.15*
Turnover Intentions
Acceptance of Dysfunctional Behavior
–0.45*** –0.52***
Organizational Commitment Adjusted GFI:
0.9994
Bentler & Bonett’s NFI:
0.9999
Bentler & Bonett’s NNFI:
1.0842
Bentler’s CFI:
1.0000
Chi-Square:
0.0110
df
1
H1 +0.27*** P-Values
Auditor Acceptance of Dysfunctional Audit Behavior: An Explanatory Model Using Auditors’ Personal Characteristics David P. Donnelly University of Nevada, Las Vegas Jeffrey J. Quirin Wichita State University David O’Bryan Pittsburg State University
ABSTRACT Dysfunctional behavior (DB) and staff turnover are associated with decreased audit quality (Public Oversight Board 2000). Dysfunctional behaviors such as premature sign-off, gathering of insufficient evidence, altering or replacing audit procedures, and underreporting of time have negative effects on the auditing profession. While recent studies suggest that dysfunctional behavior is a widespread problem (Smith 1995; Otley and Pierce 1995), extant research fails to adequately explain the causes. In this study, the organizational behavior and industrial psychology literatures provide the basis for developing and testing a model that identifies locus of control, performance, and turnover intentions as determinants of auditor acceptance of DB. Using a cross-organizational design and a structural equation modeling technique, survey results from 106 auditors generally support the explanatory model. Results indicate that auditors who are more accepting of DB tend to possess an external locus of control, report lower levels of self-rated performance, and exhibit higher turnover intentions. These results suggest that individual auditor characteristics play a role in identifying those who are more accepting of DB.
INTRODUCTION Under the guidance of former chairman Arthur Levitt, the SEC has vigorously advocated improvements in the auditing process and Data available upon request.
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profession (SEC 2000; SEC 1999). At the urging of the SEC, the Panel on Audit Effectiveness was established by the AICPA Public Oversight Board to examine the issue of audit quality. The Panel gathered information from peer reviews and surveys of financial executives, internal auditors, and external auditing professionals. Their findings indicate that dysfunctional audit behavior is a continuing concern for the auditing profession (Public Oversight Board 2000). A survey of Big 6 audit seniors confirms these concerns. Eighty-nine percent of the respondents admitted to engaging in some form of audit quality reduction behavior (e.g., premature sign-off) and estimated that time underreported was equal to approximately 12.2 percent of hours accurately recorded (Otley and Pierce 1995). Moreover, recent, highprofile audit failures, most notably Enron, have created intense public pressure for improvements in the auditing process and profession. Based on its findings, the Panel on Audit Effectiveness recommended that managing the potential risks from excessive time pressures on audit teams must be a high priority for audit firms (Public Oversight Board 2000). It also recommended that firms assess the extent of time pressures on the audit engagements and the firms’ success in managing those pressures. Finally, the Panel urged firms to provide guidance and training on actions that engagement partners and other supervisory personnel should consider in managing time pressures. These concerns have not been ignored in the academic literature. The underlying premise of related academic research (e.g., Otley and Pierce 1995; Lightner et al. 1983; Alderman and Deitrick 1982) has been that dysfunctional audit behavior is a reaction to the environment (i.e., the control system). These behaviors can, in turn, have both direct and indirect impacts on audit quality. Behaviors that directly affect audit quality include premature signing-off of audit steps without completion of the procedure (Otley and Pierce 1995; Rhode 1978; Alderman and Deitrick 1978), gathering of insufficient evidential materials (Alderman and Deitrick 1982), processing inaccuracy (McDaniel 1990), and the omission of audit steps (Margheim and Pany 1986). Underreporting of audit time has also been shown to have an indirect impact on audit quality (Smith 1995; Kelley and Margheim 1990; Lightner et al. 1982). Underreporting time leads to poor personnel decisions, obscures the need for budget revision, and results in unrecognized time pressures on future audits. Prior literature has identified environmental factors (e.g., time pressure, supervisory style) that contribute to dysfunctional behavior (DB). However, extant literature has not found that individual differences among auditors significantly affect DB (Malone and Roberts 1996). The disturbingly high level of DB associated with the auditing
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profession (Otley and Pierce 1995), the practical implications of determining what factors lead to DB, and the inadequacy of extant literature to identify and explain these factors, calls for additional research examining these topics. The purpose of this study is to investigate factors contributing to individual auditor differences in acceptance of DB. Identifying the factors that contribute to an auditor’s attitudinal acceptance of DB can be regarded as an important first step in ascertaining the determinants of actual dysfunctional behavior. To this end, an explanatory model was developed that relates locus of control, self-rated performance, and turnover intentions to auditors’ acceptance of three common DBs. Specifically, it is hypothesized that auditors with an external locus of control, lower self-rated performance, and higher turnover intentions are more accepting of DB. Using a cross-organizational design and a structural equation modeling technique, results of an analysis of 106 auditors generally support the proposed explanatory model. Results indeed indicate that individuals who are more accepting of DB do tend to possess an external locus of control, report lower levels of self-rated performance, and exhibit higher turnover intentions. The remainder of this paper is organized into four sections. The first section presents the theoretical development, while the second section discusses the research method including data collection and measurement information. In the third section, empirical results are presented. The final section concludes with a discussion and limitations.
THEORETICAL DEVELOPMENT Auditor acceptance of DB is likely to contribute to an environment in which DB occurs more frequently. To further our understanding of the underlying factors contributing to DB, this section develops a theoretical model linking locus of control, self-rated performance, and turnover intentions to auditor acceptance of DB. These linkages are referred to as the direct associations. Additional, indirect effects are also discussed followed by a formal presentation of the research hypotheses. The full theoretical model appears in Figure 1. Direct Associations with DB Locus of Control and Auditor Acceptance of Dysfunctional Behavior Locus of control, a concept developed by Rotter (1966), has been used extensively in behavioral research to explain human behavior in organizational settings. Rotter (1966) suggests that individuals develop generalized expectations concerning whether success in a given situation will be contingent on their own personal behavior or controlled by external forces. Individuals who tend to associate outcomes
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FIGURE 1 Theoretical Model
Performance H2 – – – + Locus of Control
+
H3 +
Turnover Intentions
–
Acceptance of Dysfunctional Behavior
–
Organizational Commitment
H1 +
with their own efforts or believe that events are under their own control are referred to as internals. Externals are those who believe that they cannot control events or outcomes (Spector 1982). Thus, internally and externally directed people can encounter identical situations, yet perceive that their actions will have quite different impacts on their lives. Studies have shown a strong, positive correlation between an individual’s external locus of control and a willingness to use deception or manipulation to achieve personal objectives (Gable and Dangello 1994; Comer 1985; Solar and Bruehl 1971). Based on a meta-analytic review of 20 studies examining this relation, Mudrack (1989) concluded that the use of manipulation, deception, or ingratiation tactics may reflect an attempt on the part of externals to assert some influence over a hostile environment that lends itself as more suitable to internally oriented approaches, such as hard work. In situations where externals are unable to obtain the reinforcements needed for survival, they view manipulation of others as a necessary defense (Solar and Bruehl 1971). Furthermore, this behavior is most likely to manifest itself in situations where the employee perceives a high degree of structure or supervisory control (Gable and Dangello 1994).
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In an auditing context, manipulation or deception will manifest itself in the form of DB. These behaviors are means for the auditor to manipulate the audit process in order to achieve the individual’s performance objective. The reduction in audit quality resulting from these actions may be viewed as a necessary sacrifice in order for the individual to survive in the audit environment. It is expected that the higher the individual’s external locus of control the more likely he/ she is to accept DB. Employee Performance and Auditor Acceptance of Dysfunctional Behavior There is no conclusive evidence on the association between performance and dysfunctional behavior in general. This is expected given that the purpose of the dysfunctional act is to often manipulate the performance measure, making it difficult to obtain a true performance indicator. However, there is theoretical support that dysfunctional behavior is more likely to occur in situations where the individual’s self-perception of performance is lower. The literature suggests that dysfunctional behavior occurs in situations where individuals see themselves less capable of achieving the desired or expected outcome through their own efforts (Gable and Dangello 1994). In a similar study, Solar and Bruehl (1971) stated that individuals who perform at levels below personal or supervisor expectations are more likely to engage in dysfunctional acts since they do not see themselves achieving the reinforcements necessary for survival in the organization through their own efforts. Thus, dysfunctional behavior is viewed as necessary in situations where organizational and/or personal goals cannot be achieved through typical means of performance. This relation is considered stronger in environments perceived by the employee to have high structure or supervisory control (Gable and Dangello 1994). The use of audit programs, time budgets, and close supervision could cause the audit process to be perceived as a highly structured environment. Therefore, auditors having a lower perception of their performance level are expected to exhibit a higher acceptance of DB. Turnover Intentions and Auditor Acceptance of Dysfunctional Behavior Malone and Roberts (1996) suggest that auditors with intentions to leave the firm could be more willing to engage in dysfunctional behaviors due to the decreased fear of possible termination if the behavior were detected. Furthermore, individuals intending to leave the firm are arguably less likely to be concerned with the potential adverse impact of dysfunctional behaviors on performance appraisal and promotion. Thus, auditors possessing higher turnover intentions may be more accepting of dysfunctional behaviors.
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Indirect Associations Incorporating the interrelationships among locus of control, selfrated performance, and turnover intentions can provide a better understanding of the complex causes of DB. Additionally, existing literature indicates that organizational commitment may also play a prominent role in this study’s theoretical model through its effect on self-rated performance and turnover intentions. Thus, a discussion of these associations follows. Locus of Control and Employee Performance Prior research shows that locus of control is significantly related to performance. Internals tend to exert greater effort than externals when it is believed that effort leads to rewards (Spector 1982; Majumder et al. 1977; Phares 1976). Internals exhibit better learning, problem-solving skills (Phares 1976; Wolk and DuCette 1974; DuCette and Wolk 1973), and use of information (Phares 1968). In studies of career effectiveness, locus of control has been linked to promotion and salary decisions (Andrisani and Nestle 1976; Heisler 1974). The differences between internals and externals make each better suited for certain types of positions. Therefore, the relation between locus of control and performance is dependent upon the assigned task. Spector (1982, 486) suggests that: Internals are best suited for highly technical or skilled jobs, professional jobs, and managerial or supervisory jobs. Externals would be more suited to factory line jobs, unskilled labor jobs, clerical jobs and jobs of a routine nature.
The investigation of the role of locus of control in the accounting literature has been somewhat limited. Locus of control was identified as a moderator in the participation/performance association in several earlier participative budgeting studies (Frucot and Shearon 1991; Licata et al. 1986; Brownell 1981). In an audit setting, it has received only recent attention. Hyatt and Prawitt (2001) provide some evidence that internal locus of control is associated with enhanced performance. Because of the technical and professional natures of the auditing work environment and consistent with prior findings, internals should perform at a higher level than externals in an auditing setting. Locus of Control and Turnover Intentions Several studies have found a significant relation between an internal locus of control and job tenure showing internals are less prone to turnover than externals (Andrisani and Nestle 1976; Organ and Greene 1974; Harvey 1971). Given the technical and professional natures of the auditing profession, internals are expected to be better
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suited for positions in an audit setting, while externals are more likely to experience greater job-related conflict. It is hypothesized that this inherent difference between internals and externals will manifest itself in the auditing profession via turnover intentions. Specifically, externals are expected to exhibit higher levels of turnover intentions. Employee Performance and Turnover Intentions Employee performance as an antecedent to turnover has received considerable attention. Although it has been argued that superior performers have greater opportunities and are therefore more likely to turnover (Price 1977), recent studies suggest this may not be the case. In fact, superior performers have been found to be more likely to be promoted and to stay with their respective organizations than poor performers (Vecchio and Norris 1996; Wells and Muchinsky 1985; Dreher 1982). The results of a 24 study meta-analysis performed by McEvoy and Cascio (1987) found turnover to be lowest among the best performers. Given the promotion/tenure nature of public accounting, one would expect this type of relation to exist. Auditors who exhibit high levels of performance are promoted, while those who are unable to attain minimum performance standards are eventually forced out of the organization. Based on these findings, it is expected that performance will be inversely related to turnover intentions. Locus of Control and Organizational Commitment Locus of control has been found to be an antecedent to organizational commitment (Luthans et al. 1987; Kinicki and Vecchio 1994). In theory, committed employees should work harder, remain with the organization, and contribute more effectively to an organization (Mowday et al. 1979). Internals perceive that they have more opportunities than do externals (Spector 1982). Therefore, when internals join a firm, they tend to have a higher commitment to that choice relative to externals (Luthans et al. 1987). During their tenure with an organization internals will similarly perceive alternatives exist in the job market and by virtue of their remaining with an organization will develop greater organizational commitment (Spector 1982). In contrast, externals perceive fewer choices and are less likely to act on these choices. That is, externals may feel they have no choice but to stay with the current company, while internals make an active choice to remain and subsequently increase their commitment to the organization. Organizational Commitment and Employee Performance Numerous studies have viewed organizational commitment as an antecedent to performance (Randall 1990). Work by Mowday et al. (1974) suggests that highly committed employees perform better than
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less committed ones. Ferris (1981) found that the performance exhibited by junior-level professional accountants was, in part, affected by their level of organizational commitment. Similarly, in a study of the determinants of auditor performance, Ferris and Larcker (1983) indicated that an auditor’s performance was, in part, a function of organizational commitment. More recently, Nouri and Parker (1998) found that organizational commitment positively affected performance. The results of a meta-analysis by Randall (1990) reveal that organizational commitment has a positive association with employee performance, but that this relation is small. In the current study, employees with greater commitment are expected to exhibit better performance. Organizational Commitment and Turnover Intentions Organizational commitment has often been used as an antecedent in studies predicting withdrawal behaviors. Mowday et al. (1982) predicted and found that the strongest and most predictable behavioral consequence of organizational commitment was lower turnover rates. Results of the Mathieu and Zajac (1990) meta-analysis illustrate that organizational commitment is positively associated with attendance and negatively associated with lateness and turnover. In addition, organizational commitment demonstrated a larger association with turnover-related intentions, including intention to leave one’s job. Formal Hypotheses Based on the preceding discussion of the direct and indirect associations, testable hypotheses of the theoretical model follow and are highlighted in Figure 1: H1: There is a positive association between external locus of control and acceptance of dysfunctional behavior in an auditing setting. H2: There is a negative association between employee selfrated performance and acceptance of dysfunctional behavior in an auditing setting, conditioned by locus of control and organizational commitment. H3: There is a positive association between turnover intentions and acceptance of dysfunctional behavior in an auditing setting, conditioned by self-rated performance, locus of control, and organizational commitment.
RESEARCH METHOD Data Collection In order to allow for cross-organizational generalizability, data were collected using a survey questionnaire sent to a total of 205
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auditors from a cross-section of ten public accounting firms. Questionnaires were sent out to firms of a wide variety of sizes including Big 5, large international, large national, multi-state regional, single state, and single office.1 A survey instrument package was distributed to each potential respondent via an office partner and returned by the respondents directly to the researchers via mail to ensure confidentiality. Partners were instructed by the researchers to distribute the survey instruments in a random order throughout their offices.2 Accompanying each questionnaire was a cover letter containing an explanation of the research as well as instructions for completing the survey. A selfaddressed, stamped envelope was also included. Of the 205 surveys distributed, respondents returned a total of 106 usable surveys for an effective response rate of 52 percent.3 The average respondent was 28 years old and had 5 years of audit experience. Females represented approximately 47 percent of the returned instruments. Measures The variables measured in the questionnaire include locus of control, organizational commitment, self-reported employee performance, turnover intentions, and acceptance of dysfunctional behavior. While the locus of control, organizational commitment, and employee performance measures were drawn from prior literature, the dysfunctional behavior and turnover intentions instruments required development. A copy of each research instrument is reported in the Appendix. Descriptive statistics and correlations for all measures are reported in Tables 1 and 2, respectively. Locus of control was measured using a summed total of the 16item Spector (1988) work locus of control scale.4 The Spector (1988) measure has been shown to possess a strong fit to work-related outcomes (Blau 1993). Respondents were asked to identify the relations between reward/outcomes and causes using a seven-point Likerttype scale.5 Higher scores on the work locus of control scale indicate 1
2
3
4
5
The breakdown by firm type was as follows: Big 5—one; large, international—two; large, national—two; multi-state, regional—one; single-state—one; single office— three. The authors performed a follow-up phone call with each of the participating partners and verified that he/she had randomly distributed the surveys in accordance with the authors’ instructions. Of the 106 usable survey instruments returned, 39 were from staff auditors, 36 from seniors, 24 from managers, and 7 from partners. The number of surveys returned by firm type were as follows: Big 5—49; large, international—34; large, national— 12; multi-state, regional—eight; single-state—one; single office—two. The Rotter (1966) measure was not used due to its extremely general scope. Its items cut across several different domains (e.g., education, work, politics, life in general). Items 1, 2, 3, 4, 7, 11, 14, and 15 of the instrument are reverse scored.
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TABLE 1 Descriptive Statistics
Variable
Meana
Standard Deviation
Observed Range
Cronbach Alpha
Locus of Control Organizational Commitment Employee Performance Turnover Intentions Acceptance of Dysfunctional Behavior Audit Experience
42.91 47.02 36.83 11.36 31.02
9.34 9.25 5.01 5.10 11.40
20–68 14–63 11–47 3–21 12–67
0.83 0.92 0.82 0.91 0.87
5.13
5.84
0.5–27
—
a
Mean values represent the mean of each summed instrument with the exception of the audit experience variable, which simply represents the mean number of years.
TABLE 2 Correlation Matrix
Locus of Control (1) (1) 1.000 (2) ⫺0.421** (3) ⫺0.125 (4) 0.417** (5) 0.351**
Acceptance of Organizational Employeee Turnover Dysfunctional Behavior Commitment Performance Intentions (5) (2) (3) (4) 1.000 0.363** ⫺0.651** ⫺0.286*
1.000 ⫺0.338** ⫺0.276*
1.000 0.333**
1.000
n ⫽106 *, ** p ⬍ .01 and p ⬍ .001, respectively (one-tailed significance).
a greater degree of external personality, while lower scores are associated with internal traits. The instrument’s reliability and validity have been deemed acceptable in prior research (e.g., Blau 1993; Spector 1988). In the current study, the Cronbach alpha was 0.83. A summed total of Mowday et al.’s (1979) nine-item short-form instrument was used to measure organizational commitment. The instrument was written in a seven-point Likert-type format ranging from 1 ⫽ strongly disagree to 7 ⫽ strongly agree. A response of 7 indicates a high level of organizational commitment. Prior studies report acceptable levels of reliability and validity for the nine-item instrument (e.g., Blau 1987; Nouri and Parker 1998). In this study, the Cronbach alpha was 0.92.
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Employee performance was measured using a modified version of Mahoney et al.’s (1963, 1965) multi-dimensional nine-item scale. Respondents were asked to evaluate their individual performance with regard to six performance dimensions, including planning, investigating, coordinating, supervising, representing, and staffing.6 Respondents were then asked to rate their overall effectiveness in the final question.7 The instrument was constructed using a seven-point Likert-type scale ranging from 1 ⫽ well below average to 7 ⫽ well above average. The instrument’s reliability and validity have been deemed appropriate in a host of prior studies including the accounting-related work of Brownell and Dunk (1991), Dunk (1989), and Brownell (1982). The Cronbach alpha for the current study was 0.82. For hypotheses testing purposes, a summed total of the six items was used. Although various forms of dysfunctional audit behavior have been discussed in the extant accounting literature (e.g., Kelley and Margheim 1990; Margheim and Pany 1986; Lightner et al. 1982; Alderman and Deitrick 1978, 1982; Rhode 1978), this study investigates the three major types of dysfunctional behavior deemed harmful to audit quality: premature sign-off, underreporting of time, and altering/replacement of audit procedures. A 12-item, three-part dysfunctional audit behavior instrument was designed to capture the required dysfunctional behavior information in an audit environment. Four items relating to each of the three types of dysfunctional audit behavior were included. The items in the instrument were designed to measure how accepting an auditor was to the various forms of dysfunctional behavior. The items were constructed on a seven-point Likert-type scale anchored by 1 ⫽ strongly disagree and 7 ⫽ strongly agree. Questions were written so that a response of 7 indicates a high acceptance of dysfunctional behavior. Respondents were asked to report their acceptance of, rather than their actual engagement in, DB for three reasons. First, SAS No. 82 recognizes that attitudes are indicators of actual behaviors (AICPA 1997). Second, evidence from Lightner et al. (1982, 1983) suggests that personal beliefs impact an auditor’s willingness to engage in DB. Those who are more accepting of a behavior were more likely to engage in the behavior (Onsi 1973). Third, logic suggests that some 6
7
The original Mahoney et al. (1963) instrument also included evaluating and negotiating dimensions. However, the authors determined that these performance dimensions were not applicable to the auditing profession. Although several studies have criticized self-reported measures of performance as unreliable due to leniency bias (e.g., Parker et al. 1959), other studies have noted that leniency bias is inconsequential unless the bias is systematically related to an independent variable (Kren 1992; Chenhall and Brownell 1988). The use of selfreported measures also minimizes the ‘‘halo’’ effect that may occur with supervisor ratings (Heneman 1974; Nealy and Owen 1970). Halo effects result from the tendency to evaluate ‘‘globally’’ or for managers to evaluate on only one cognitive dimension.
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subjects would likely hesitate to admit to engaging in DB, possibly resulting in either a nonresponse or a question of response validity (Rest 1979). A principal components, orthogonal rotation factor analysis of the dysfunctional behavior instrument indicated that all four premature sign-off items loaded above 0.5 on a single factor, all four underreporting of time items loaded on a single factor at the 0.5 level, and all four altering/replacement of audit procedure items also loaded on a single factor at the 0.5 level. Eigenvalues for the premature signoff, underreporting of time, and altering/replacement of audit procedure factors were 3.211, 2.459, and 2.069, respectively. The analysis indicated that crossloadings of the questions from the three separate factors were not problematic. Further analysis was done to ascertain the instrument’s reliability. The Cronbach alpha for the 12item measure was 0.87, while the reliability alphas for the premature sign-off, underreporting of time, and altering/replacement of audit procedure portions of the survey were 0.82, 0.92, and 0.81, respectively. For hypotheses testing purposes, a summed total of the entire 12-item instrument was used. Accounting studies have used somewhat different measures of employee turnover intentions (Scandura and Viator 1994; Aranya et al. 1982; Senatra 1980; Dillard and Ferris 1979). Given the promotion/tenure characteristics of the public accounting profession, the current study captured respondents’ immediate turnover intentions and their long-term intent. A summed, three-item turnover intentions scale assessed the respondents’ immediate turnover intentions (within 2 years), middleterm turnover intentions (within 5 years), and long-term intentions (until retirement). This multi-time period approach is supported by prior literature (Scandura and Viator 1994; Rasch and Harrell 1990; Aranya and Ferris 1984). The items were written in a seven-point Likert-type format anchored by 1 ⫽ strongly disagree and 7 ⫽ strongly agree. Items were reverse scored so that higher values indicate a higher degree of turnover intent. An analysis was undertaken to ascertain the instrument’s reliability. The resulting Cronbach alpha was 0.91. Structural Equation Modeling Structural equation analysis was used to evaluate the proposed hypotheses. Structural equation analysis, rather than moderated regression analysis or ANOVA, was used because the theoretical model presented in the study is viewed as an antecedent and consequence nomological framework for turnover intentions and acceptance of dysfunctional behavior. Use of structural equation modeling for testing of such frameworks as well as contingency-based hypotheses, like those contained in this study, has been suggested as the statistical
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method of choice in recent literature (Hartmann and Moers 1999; Shields and Shields 1998).8
EMPIRICAL RESULTS Overall Model Fit The goal of structural equation modeling is to evaluate whether associations proposed in theory, or in prior research, fit the present data set. Evidence of proper fit is provided by the Chi-square statistic and various other fit indices. However, measures of proper fit can be problematic. For example, the potential exists with small sample sizes for the Chi-square statistic to incorrectly indicate a close fit. Because the sample size used in this study is relatively small (n ⫽ 106), multiple measures of overall model fit are reported9 to lend assurance that the measures of fit produced are not spurious. This lends some assurance that the measures of fit produced are not spurious.10 Figurative depictions of the results of the structural equation analysis are presented in Figure 2. With adjusted model fit values approaching or exceeding 1.0 in all instances, the data appear to fit the model well.11 Tabular results of the structural equation analysis including a listing of each hypothesis and its corresponding path coefficient are presented in Table 3. Consistent with the high model fit indices, results in Table 3 indicate that the indirect model effects suggested by 8
An alternative to structural equation modeling is path analysis. Both statistical approaches test for the significance of individual paths like those hypothesized in this study. Unlike path analysis, structural equation modeling also provides several goodness-of-fit measures that can be used to assess overall model fit. 9 Specifically, the adjusted goodness of fit index (AGFI), the Normed Fit Index (NFI), the Non-Normed Fit Index (NNFI), and the comparative fit index (CFI) are reported. 10 The Normed Fit Index (NFI) was proposed by Bentler and Bonett (1980) as an alternative to the Chi-square test. Values of this index range from 0 to 1, with values over 0.9 indicating a good fit. This index may be viewed as the percentage of observedmeasure covariation explained by a given model. The disadvantage of the NFI is that it can underestimate goodness-of-fit in small samples. A variation of the NFI is the Non-Normed Fit Index (NNFI), which was also proposed by Bentler and Bonett (1980). This measure has been shown to better reflect model fit at all sample sizes. As with the NFI, values exceeding 0.9 indicate a relatively good fit. However, the NNFI may assume values below 0 and above 1. Bentler’s (1990) revised normed comparative fit index (CFI) is based upon the Bentler and Bonett (1980) NFI, but with a correction for sample-size dependency. CFI values always lie between 0 and 1, with values over 0.9 indicating a relatively good fit (Bentler 1990). Finally, the adjusted goodness of fit index (AGFI), devised by Joreskog and Sorbom (1984), is an additional fit index that ranges from 0 to 1, with values above 0.9 indicating acceptable fit. 11 In order to determine the extent to which the results differ by position, the authors estimated the theoretical model first with staff, seniors, and managers, but without partners, and second with staff and seniors but without managers and partners. After omitting these position levels, the overall model fit declined slightly but remained acceptable. The only path whose significance level changed was from performance to turnover intentions, which became insignificant when both managers and partners were omitted from the analysis. All other paths retained their original level of significance and sign.
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FIGURE 2 Structural Equation Model with Path Coefficients
Performance H2 –0.19** +0.05 –0.13** +0.38*** Locus of Control
+0.18**
H3 +0.15*
Turnover Intentions
Acceptance of Dysfunctional Behavior
–0.45*** –0.52***
Organizational Commitment Adjusted GFI:
0.9994
Bentler & Bonett’s NFI:
0.9999
Bentler & Bonett’s NNFI:
1.0842
Bentler’s CFI:
1.0000
Chi-Square:
0.0110
df
1
H1 +0.27*** P-Values
