Designing a Model to Explain the Role of Personality Traits and Leadership Styles of the Managers in the Weakness of Internal Controls

The aim of this research is to find a model to explain the role of personality traits and leadership styles of management in the weakness of internal controls.

This research is an applied research with quantitative data. The big five components of Neo personality traits as well as the four leadership styles of Hersey and Blanchard are the independent variables of this research. Structural equations and partial least squares method have been used to test the research models. The research period is fiscal years 2019 and 2020 and the statistical sample includes 398 chairmen of the audit committees of companies listed on the Tehran Stock Exchange who have been selected using the screening sampling method.

The results indicate that Neuroticism personality trait and Telling leadership style have positive and significant effect on internal controls weakness and impact of Agreeableness and Conscientiousness characteristics and Selling and Participating leadership styles is negative and significant. There was no significant effect on Extraversion and Openness characteristics and Delegating leadership style.

The model designed in this research has high predictive power to explain the role of board’s personality traits and leadership style in internal controls weakness. Based on the proposed model, stockholders and other corporate governance top bodies, in selecting managers, are suggested to consider their personality traits, especially neuroticism, agreeableness and conscientiousness, and leadership style tendencies, including telling, selling and participating.

In this research, for the first time in Iran, the effect of personality traits and leadership styles of managers on company's internal controls weakness was investigated and the results help to develop behavioral financial literature, corporate governance and related theories.