Organizational psychological capital and financial reporting quality

Abstract

Based on organizational psychological capital theory, this study argues that organizational psychological capital, captured by four unique dimensions (optimism, hope, resilience, and self-efficacy), influence a firm’s financial reporting quality. Prior studies have revealed that organizational psychological capital is positively associated with organizational performance, organizational ethical climate, employees’ job satisfaction and well-being and that these characteristics have been shown to positively influence financial reporting quality. Thus, this study hypothesized and found a positive relationship between organizational psychological capital and the firm’s financial reporting quality. In addition, this paper found that the effect of organizational psychological capital on a firms’ financial reporting quality is more pronounced for firms with weak corporate governance mechanisms, implying that firm-level psychological capital becomes important in certain situations.