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Peer Influence on Managerial Honesty: The Moderating Role of Earnings Position

Chaoping Li (Skidmore College, USA)
Andrea Drake (Louisiana Tech University, USA)

Advances in Management Accounting

ISBN: 978-1-80382-032-3, eISBN: 978-1-80382-031-6

Publication date: 18 January 2023

Abstract

This study uses a budgeting experiment to examine the effects of peer influence and firm earnings position on managerial honesty. In the experiment, participants report production costs to request funds from the firm based on their actual private cost information. The firm’s earnings position is manipulated at two levels, a gain condition and an edge condition, and the authors find that participants overstate costs (i.e., are less honest) to a greater extent in the dishonest peer influence condition than in the honest peer influence condition. The authors also find that the effect of peer influence on managerial honesty is context dependent. Specifically, participants respond to both dishonest and honest peer influence in the gain condition but they do not respond to peer influence in the edge condition. This study provides evidence for honest peer influence on honesty and it highlights the role of earnings position on the effect of peer influence on honesty. Controlling the disclosure of certain peer information is not possible because individuals can learn about peer information (honest or dishonest) formally or informally. Such uncontrollable peer information may be harmful to firms. The results suggest firms that provide managers with the consequences of managerial budgeting on the firm operational outcomes can neutralize the effect of peer influence on managerial honesty when managers’ budgeting decisions significantly affect firm profits.

Keywords

Acknowledgements

Acknowledgements

The authors are grateful for the insightful comments and suggestions made by Chris Akroyd (Editor) and two anonymous reviewers. The authors are also thankful for comments made by attendees at AAA 2019 Midwest Region Conference, AAA 2019 Diversity Conference, and workshop participants from Louisiana Tech University. The second author would like to thank the Humana/McCallister Foundation for their financial support. All errors remain ours.

Citation

Li, C. and Drake, A. (2023), "Peer Influence on Managerial Honesty: The Moderating Role of Earnings Position", Akroyd, C. (Ed.) Advances in Management Accounting (Advances in Management Accounting, Vol. 34), Emerald Publishing Limited, Leeds, pp. 177-201. https://doi.org/10.1108/S1474-787120220000034007

Publisher

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Emerald Publishing Limited

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