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How does Peer Honesty Affect Focal Manager Honesty in a Budget Reporting Setting?

Advances in Accounting Behavioral Research

ISBN: 978-1-78190-838-9

ISSN: 1475-1488

Publication date: 8 August 2014

Abstract

We examine the effect of peer honesty on focal manager honesty in a budget reporting setting. We disclose peer honesty to the focal manager at three levels: no, partial, and full disclosure of the reporting behavior of the other managers in the focal managers’ cohort. In partial disclosure, only the reports of the least honest peers are disclosed to the focal manager. In full disclosure, all managers’ reports in the cohort are disclosed to the focal manager. We predict and find that disclosure of other managers’ reports leads to less honesty compared to the absence of disclosure. We show that disclosure changes the focal manager’s perceptions of what constitutes acceptable reporting behavior, such that reporting more dishonestly becomes more acceptable. Our results have implications for understanding fraud dynamics and have practical implications for the design of control systems, as they suggest that managers will use peer dishonesty to justify their own dishonesty, even when they know that only some of their peers report dishonestly.

Keywords

Citation

Paz, M., Reichert, B.E. and Woods, A. (2014), "How does Peer Honesty Affect Focal Manager Honesty in a Budget Reporting Setting?", Advances in Accounting Behavioral Research (Advances in Accounting Behavioural Research, Vol. 16), Emerald Group Publishing Limited, Bingley, pp. 85-114. https://doi.org/10.1108/S1475-1488(2013)0000016009

Publisher

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Emerald Group Publishing Limited

Copyright © 2013 Emerald Group Publishing Limited