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

ISSN: 1574-0765

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

Citation

Laird, B. and Bailey, C. (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, pp. 67-94. https://doi.org/10.1108/S1574-076520160000020003

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Emerald Group Publishing Limited

Copyright © 2016 Emerald Group Publishing Limited

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