Can Integrity Pledges Improve Financial Reporting?

In recent years, integrity oaths have gained popularity as a tool to reinforce ethical behavior among executives and professionals. However, little is known about the impact of these oaths on firms’ financial reporting quality. We answer this question using data from the Netherlands, where a law was enacted in 2016 mandating that Dutch professional accounting degree holders (akin to “CPAs” in the United States) take a one-time integrity oath.

While the oath aimed to improve the Dutch audit profession, it particularly affected firms whose CFO had an accounting degree, and hence also had to take the pledge. Thus, we used a difference-in-differences methodology to compare changes in financial reporting quality for firms whose CFO was required to pledge integrity and those whose CFO was not. The critical identification assumption is that firms whose CFO is a “CPA” are not much different from those whose CFO holds a different degree.

From a theoretical perspective, the effect of the pledge on firms’ financial reporting is unclear. On the one hand, work in behavioral economics shows that oaths can serve as a reminder of the code of ethics and acceptable behavior within a profession (e.g., Cialdini and Trost 1998; Mazar et al. 2008). On the other hand, oaths do not introduce new ethical requirements or legal penalties, which according to Becker’s (1968) framework, should not result in behavioral changes.

Firms can achieve their earnings targets through two distinct forms of earnings management: They can either adopt more aggressive accounting practices (accounting-based earnings management) or strategically manage their business activities, such as reducing spending on maintenance or advertising (real activities earnings management). Our evidence shows that when CFOs took the integrity oath, there was a significant improvement in financial reporting quality. Interestingly, the improvement was due to a reduction in both types of earnings management. In other words, we do not find a substitution of some accounting-based earnings management for some real activities earnings management or vice versa. This finding suggests that executives who took the oath are concerned about following not only the letter of the law but also the spirit of the law.

Some considerations are worth discussing. First, given the rule’s recency, we could only examine the first three years since it took effect. Understanding the long-run dynamics (e.g., how do the effects fade over time?) would likely be helpful for policymakers when choosing the optimal frequency for implementing oaths. Second, our analyses are set in the Netherlands, which shares many cultural similarities with other European countries and even the U.S., but the interaction with other cultural and legal characteristics may influence the efficacy of integrity oaths. Finally, we conduct a battery of tests to rule out the possibility of unobservable correlated variables affecting the results. For example, we do not find an effect when the CEO is a “CPA,” likely because CEOs are typically not in charge of financial reporting.

Overall, our study contributes to the discourse around corporate governance and the role of integrity in financial reporting. Understanding the impact of integrity oaths can help policymakers, professionals, and organizations make informed decisions about implementing measures to enhance ethical behavior and financial transparency within their respective domains. Oaths are a particularly attractive governance tool as they are cost-effective and can be easily implemented.


Becker, G. S., 1968. Crime and punishment: An economic approach. In The Economic Dimensions of Crime, 13–68. Palgrave Macmillan, London.

Cialdini, R. B. and Trost, M. R., 1998. Social influence: Social norms, conformity and compliance. In D. T. Gilbert, S. T. Fiske, & G. Lindzey (Eds.), The Handbook of Social Psychology, 151–192. McGraw-Hill.

Mazar, N., Amir, O. and Ariely, D., 2008. The dishonesty of honest people: A theory of self-concept maintenance. Journal of Marketing Research 45(6), 633–644.

This post comes to us from Jonas Heese at Harvard Business School, Gerardo Perez Cavazos at the University of California, San Diego, and Caspar David Peter at Erasmus University Rotterdam. It is based on the recent article, “When Executives Pledge Integrity: The Effect of the Accountant’s Oath on Firms’ Financial Reporting,” available here.

1 Comment

  1. Dave Scott

    A simple oath, whether signed or not, is not going to affect behavior.

    Lawyers have ethical rules, they are required to attend 3 hours a year of continuing education regarding those rules and ethical behavior is enforced. In Indiana lawyers pay to support the agency that investigates them.

    I have been in practice for over 50 years and I have seen a significant change in behavior. We had rules, but the weren’t truly enforced nor were then front and center as the are now.

    We need to quit talking philosophy and start talking practicality. Ethical conduct is good business. My number one mentor told me: “Protect your integrity. It is worth money to you.” He was correct.

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