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Does Monitoring Reduce the Agent’s Preference for Honesty?

Research on Professional Responsibility and Ethics in Accounting

ISBN: 978-1-78560-974-9, eISBN: 978-1-78560-973-2

Publication date: 27 October 2016

Abstract

Traditional agency theory assumes monitoring is good for the principal, but we investigate an unintended effect: diminishment of the agent’s preference for honesty. We hypothesize greater dishonest behavior in a monitored environment than in a non-monitored environment, when the agent has the opportunity to cheat outside the scope of monitoring. Relevant theories to explain such behavior are behavioral agency theory, where trust and reciprocity are thought to alter contractual outcomes, and the fraud-triangle theory, where the ability to rationalize deviant acts affects behavior. We utilize participants who have been acclimated to either a monitored or an unmonitored condition in an immediately preceding experiment and seamlessly continue that treatment. Within each of these conditions, participants perform a simple task with a performance-based monetary reward. Half self-report and can safely cheat, while the other half are verified; the difference between verified and self-reported scores is a proxy for dishonest reporting. As hypothesized, unmonitored individuals reciprocate with honest behavior, while monitored individuals tend toward dishonest behavior when the opportunity arises. Implications for fraud prevention are discussed.

Keywords

Acknowledgements

Acknowledgments

This paper is based on Brian K. Laird’s dissertation at the University of Memphis, directed by Charles D. Bailey. He gratefully acknowledges the guidance and support of committee members John Malloy, Zabihollah Rezaee, and Peter Wright. He also is grateful to the Institute of Management Accountants for funding this research as part of their Doctoral Student Grant Program. The paper has benefitted from comments on previous drafts from colleagues at the 2014 Mid-South Doctoral Research Consortium, the 2014 AAA Forensic and Investigative Accounting Section Meeting, the 2014 AAA Annual Meeting, and the 19th Annual Ethics Research Symposium, discussant Jingyu Gao, and other anonymous reviewers.

Citation

Laird, B.K. and Bailey, C.D. (2016), "Does Monitoring Reduce the Agent’s Preference for Honesty?", Research on Professional Responsibility and Ethics in Accounting (Research on Professional Responsibility and Ethics in Accounting, Vol. 20), Emerald Group Publishing Limited, Leeds, pp. 67-94. https://doi.org/10.1108/S1574-076520160000020003

Publisher

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Emerald Group Publishing Limited

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