'Dark triad managerial personality and financial reporting manipulation'

Revision requested at the Journal of Business Ethics (a Financial Times top 50 journal)



Every now and then, we observe corporate accounting scandals that annihilate billions of market capitalization. Examples of these are numerous, with the Wirecard scandal being the most recent, and earlier scandals including Enron and WorldCom. In general, corporate fraud is a topic that draws constant attention from the public, regulatory bodies, and academia. However, most of the time, the attention starts too late, namely after the costs for shareholders, creditors, and employees, and possibly society of a large fraud case are already in the millions.

These large scale accounting scandals often involve top managers who are responsible for initiating, maintaining, and hiding these fraudulent practices for long periods of time. For any individual to successfully keep up a long-ranging fraud, it can be argued, requires certain predispositions. Unethical decision-making, lying for one's own gain, a sense of superiority and lack of guilt and remorse are all consequences of being a dark-triad personality. According to psychology research, such traits are particularly prevalent among fraud offenders.

In this project, we use theory and measures from personality psychology to investigate the effects of management personality traits on fraudulent accounting practices. We find a strong positive relationship between dark triad personality traits of managers and accounting manipulation. Our results indicate that for a one-unit increase in the dark triad score, the odds of engaging in fraudulent accounting increase by a factor of 2.49.

We also find that traditional risk control mechanisms such as internal audit departments staffed with internal personnel and whistleblower regulations do not easily mitigate these practices. However, having an independent and outsourced internal audit function helps to successfully curb accounting fraud. Specifically, such an externally staffed audit function leads to a roughly 60% decrease of the negative impact of managers with dark triad personality on companies' accounting practices. Consequently, having externals perform the task provides a safeguard against such manipulation. This finding has strong practical implications as it provides support for outsourcing such activities rather than keeping them in-house. (Working Paper)


'Social Interactions and (Financial) Decision-Making'



(c) Florian Stolle

This project studies the impact of social interactions on investors' financial decision-making and risk-taking. In particular, we study preferences for dependencies between payoffs for own prospects in relation to payoffs of peers' prospects and the implications of such dependencies for investors' risk-taking.

Financial support by the Deutsche Forschungsgemeinschaft (project number 434732045) is gratefully acknowledged.


'Managerial personality traits and selective hedging'

Revision requested at the Journal of Business Ethics (a Financial Times top 50 journal)



Dark triad personality traits and selective hedging

In contrast to theoretical predictions of optimal corporate hedging policies, firms engage in speculative behavior and change the composition of their derivative portfolios on a regular basis. As a direct consequence, hedging ratios show significantly higher volatility than expected, taking into account the relevant fundamentals. The literature refers to the adaption and timing of hedging transactions based on market views as selective hedging. As of today, "the widespread practice of managers speculating by incorporating their market views into firms' hedging programs ("selective hedging") remains a puzzle" (Adam et al., 2017). This project studies how risk managers' personality traits influence their decision-making processes and affect firms' selective hedging behavior. (Working Paper)

Financial support by the Frankfurter Institut für Risikomanagement und Regulierung (FIRM) is gratefully acknowledged.


  • 37th International Conference of the French Finance Association (AFFI), May 2021.
  • Behavioral Finance Working Group Conference, June 2021.
  • European Financial Management Association 2021 Annual Meeting, June/July 2021.
  • 14th-Annual Meeting of Academy of Behavioral Finance & Economics, September 2021.


'Shareholder activism around the globe: Hedge funds vs. other professional investors'



Shareholder activism has sharply increased over the past decade and spread both across countriesand among different types of investors. Today, 50% of all engagements occuroutside North America, with non-hedge fund investors accounting for one-third of all engagements. We investigatetheeffects and drivers of hedge fund and non-hedge fund activism using an international dataset of 2,689 activist engagements across 44 countries between 2008 and 2019. Activist investments in North America, on average, yield the largest immediate positive stock market returns and buy-and-hold returns, followed by engagements in Europe and the Asia-Pacific region. InNorth America,short-term abnormal returns for hedgefunds are at a similar levelas those fornon-hedge funds,but in Europe and the Asia-Pacific region, they are higher for non-hedge funds. However, globally,hedge funds achieve higherbuy-and hold returns and are more successful than non-hedge funds in implementing change in target firms. Over time, our results suggest unfulfilled investorexpectations, as announcement returns are increasing but (abnormal) buy-and-hold returns and the impact on performance measures of target firms are decreasing for both hedge fundsand non-hedge funds. (Working Paper)



'A boon or a bane? An examination of social communication in social trading'



Social trading is an emerging market in the sharing economy, allowing inexperienced investors (copiers) to automatically follow the trades of experts (leaders) in real time. We use a separable temporal exponential random graph model (STERGM) to analyze the link formation and dissolution of a large social trading network. In contrast to traditional social networks, social trading networks are characterized by a rapid dissolution of links, thereby increasing the importance of studying network dissolution. We investigate how social communication, along with financial performance and demographics, affects dynamic network evolution and address the existing dependence among copier-leader links. Our results show that social communication, financial performance, and demographic factors are important determinants of link formation. However, once a link is formed, copiers mainly focus on financial performance and communication but not on demographic factors. Thus, the determinants of link formation and dissolution are asymmetric. Different types of social communication, such as posts and comments, have different implications for link formation and dissolution. Our findings provide important implications for both investors and social trading platforms. (Working Paper)


  • 2020 INFORMS CIST Conference.
  • 2021 Production and Operations Management Society (POMS) Annual Conference.