Influence

In this research, we have drawn from - and combined - theories of leading by example and ethical leadership to analyze whether workers follow their leaders' ethical reporting choices. We have further explored leaders' use of punishments or rewards and its influence on workers' reporting choices. Collectively, our results reveal a dual role of leaders in spurring ethical behaviors within organizations. On the one hand, workers behave more ethically if their leader makes ethical choices. On the other hand, leaders do not appear to make ethical choices in the first place, and they can even punish workers who opt for non-fraudulent (but less profitable) reporting. Hence, leading by example may backfire, exacerbating - rather than fixing - fraudulent behaviors. We emphasize the need to rethink the (predominately positive) theories of ethical leadership, and warn organizations about the importance of recruiting "the right" leaders - those more inclined to ethical practices.