Impacts of psychological behaviors of managers on money laundering: evidence from Iran stock exchange
| DOI | https://doi.org/10.1108/JMLC-01-2021-0001 |
| Published date | 16 June 2021 |
| Date | 16 June 2021 |
| Pages | 206-223 |
| Author | Hadi Saeidi |
Impacts of psychological
behaviors of managers on money
laundering: evidence from Iran
stock exchange
Hadi Saeidi
Departmentof Accounting, Shirvan Branch,Islamic Azad University,Shirvan, Iran
Abstract
Purpose –This study aims to investigate the impacts of the psychological behaviors of managers,
including entrenchment,myopia, narcissism and overconfidence, on money laundering at Iraniancompanies
listed on the TehranStock Exchange.
Design/methodology/approach –The present study is descriptive-correlational in terms of
methodologyand applied research in terms of objectives. The statistical populationconsisted of all companies
listed on the Tehran Stock Exchange during 2013–2019.A total of 150 companies were selected as samples
via screening.Logistic regression was used to analyze the data and test the hypothesesin EViews v10.
Findings –The findings revealed that management entrenchment, managerial myopia, managerial
narcissismand managerial overconfidence have significant impactson money laundering.
Originality/value –This study pioneer investigating the impacts of psychological behaviors among
managers on moneylaundering in Iran. As an economic crime, money launderingposes an adverse impact on
economic growth in countries. The continuousmonitoring of manager performance and the deployment of
performance measurement systems could prevent the negative impacts of manager behavior on money
laundering.
Keywords Overconfidence, Money laundering, Narcissism, Entrenchment, Myopia
Paper type Research paper
1. Introduction
Money laundering refers to the transformationof illegally-obtained money into apparently-
legal assets. In the process of money laundering, money that has been obtained through
illegal actions is transformedinto money or wealth that seems to have been legally acquired
in the economy. In many legal and authorized systems, money laundering measures are
integrated with other criminal financial and commercial methods. Most anti-money
laundering rules are explicitly integrated with money laundering. A number of countries
define money laundering as concealingthe origins of financial resources, while some others
describe money laundering as money whose origin may be seen as legal in a part of the
country and illegal in another part. Anti-money laundering rules have been criticized by
some researchers whobelieve that this wide range of anti-money launderingrules outside or
inside the country is more financial beliefs or theoriesthan practical (Bartlett, 2002). Money
laundering is an economic crime and poses a significant adverse influence on the economic
growth of countries. The United National General Assembly (1998) estimated that at least
2bn USD was laundered annually. The adverse impacts of money laundering include the
destruction of financial markets, illegal capital flight, reduced money demand, decreased
annual gross domestic product (GDP) rate certainty, private sector bankruptcy, reduced
JMLC
25,1
206
Journalof Money Laundering
Control
Vol.25 No. 1, 2022
pp. 206-223
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-01-2021-0001
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
productivity in the real sectorof the economy, increased privatization risk, destroyed foreign
sector of the economy, instable currencyexchange and interest rates and income inequality.
Entrenched managers manipulate the performance size so that their companies would pay
attention to investors to protect their positions. However, accounting manipulation may be
subjected to heavy punishments when it is revealed. To prevent managerial entrenchment,
committed managersmayimplement two measures:
(1)security cooperation with analyzers; and
(2)reducing information revelation so that the investors would not be able to easily
perform manipulation.
Entrenched managers tend to control liquidity storage as it could unwantedly draw the
attention of active stockholders. In other words, entrenched companies have larger
adjustment rates at high liquidity levels than other companies. Managerial entrenchment
can destroy the wealth of stockholders. Given that earnings management endangers the
wealth of stockholders (Elyasiani and Zhang, 2015), CEO entrenchment misleads the
liquidity policy of a company as the senior managers and managers of stockholding
companies have contradictorypreferences over liquidity. Entrenched managershave higher
liquidity, as it helps reduce company risks, provides occupational and wealth security and
allow for pursuing personalobjectives. They prefer liquidity larger than creditlines, as they
are accompanied by bank monitoring. They exploit more credit lines despite associated
monitoring, as they provide additional liquidity. Increased liquidity due to CEO
entrenchment could be ascribed to smaller and more ambiguous companies. Large and
transparent companies preserve their liquidity but increase their stocks. In the financial
context, myopia is defined as short-term financial activity (Merchant, 1990;Laverty, 1996).
In managerial decision-making, three types of myopia, namely, spatial myopia, temporal
myopia and overconfidence, influence behavior and performance in the form of negligence
tendency, neglecting long-term objectives and neglecting failure and defects. Managerial
entrenchment reflects the opportunistic actions of managers without considering
stockholder interests, which are exhibited by raising current accounting earnings through
reducing costs with long-term interests (such as research and development (R&D) and
marketing costs) (Mavruk, 2011). In general, myopia is defined as the lack of prediction or
intellectual insight, limited views and superficial thinking and planning. These general
definitions exist in myopia methods andmarketing, management and financial literature.
Myopia is an expression of a bias or orientation that imposes serious and important
limitations on considering alternates and suggestions in making decisions and choices.
Entrenched management at covered companies significantly raises the bias of analyzers.
Ulupinar (2018) used the governanceindex and demonstrated that the bias of analyzers rises
due to increased managerial entrenchment and that dependent analyzers do not provide
unbiased research to companies that have fewer claimants and are not among the most
powerful ones, as such analyzers are concerned about their investments. Management is a
key role in organizations.The personal preferences and emotions of managers can influence
selection policies and methods in organizations. Overconfidence is an important factor
affecting the behavior of managers. It is a personality trait that can be defined as having
unreal (positive) beliefs on an outcome aspect under a lack of confidence. In such a case,the
average would be overestimated (Skala, 2008). Chyz et al. (2014) demonstrated that
managerial overconfidence has a significant, positive effect on tax avoidance. Managerial
overconfidence increases the cash-effective tax rate by 1.5%. Roll (1986) believed that
managerial overconfidence was the reason for managers engaging in merger and
acquisition activities that destroyed company value. Disturbances in investment activities,
Impacts of
psychological
behaviors
207
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