The Effects of Risk Appetite and Social Pressure on Aggressive Financial Reporting Behavior

The company's willingness to accept and manage risk, known as risk appetite, and the pressure to influence people over what is called social pressure, can mislead a company's financial reporting. The purpose of this study is to investigate the impact of corporate risk appetite and social pressure on aggressive financial reporting. A scenario-based questionnaire adapted from Brink et al. (2018) research was used to test the research hypotheses. For the present experimental study, 160 financial managers were selected according to the Cohen et al. (2000) research sample. Analysis of variance was used to test the research hypotheses. The results show that when the risk appetite of the firm is aggressive, the obedience social pressure (conformity social pressure) causes financial managers to be more (less) inclined to aggressive financial reporting. Also, the results showed that when the risk appetite of the company is conservative or aggressive, obedience social pressure (conformity social pressure) leads to more (less) financial managers' tendency to aggressive financial reporting. In addition, the results indicate that the interaction of corporate risk appetite and social pressure does not influence financial managers' willingness to aggressive financial reporting.