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How Contextually Dependent, Non-monetary Preferences Influence Cost Reporting Misrepresentations

Timothy C. Miller (Xavier University, USA)
Sean A. Peffer (University of Kentucky, USA)
Dan N. Stone (University of Kentucky, USA)

Advances in Management Accounting

ISBN: 978-1-83753-917-8, eISBN: 978-1-83753-916-1

Publication date: 24 October 2023

Abstract

This study contributes to the participative budgeting and budget misrepresentation literature by exploring: (1) whether managers’ judgments of fair behaviors are malleable and context-dependent and (2) if these judgments of fair behavior impact cost reporting misrepresentations. Two experiments investigate these questions. Experiment 1 (n = 42) tests whether the behavior that managers judge to be “fair” differs based on the decision context (i.e., initial economic position [IEP]). Experiment 2 (n = 130) investigates: (1) how managers’ deployment of fairness beliefs influences their reporting misrepresentations and (2) how decision aids that reduce task complexity impact managers’ deployment of fairness beliefs in their misreporting decisions. The study found that managers deploy fairness beliefs (i.e., honesty or equality) consistent with maximizing their context-relevant income. Hence, fairness beliefs constrain misrepresentations in predictable ways. In addition, we find more accounting information is not always beneficial. The presence of decision aids actually increases misrepresentations when managers are initially advantaged (i.e., start with more resources than others). The implications from these findings are relevant to the honesty and budgeting literature and provide novel findings of how managers’ preferences for fairness constrain managers from maximizing their income. The chapter demonstrates that contextual factors can influence the deployment of managers’ fairness beliefs which, in turn, differentially impact their reporting misrepresentation. Another contribution is that providing decision aids, which reduce task complexity, may not always benefit companies, since such aids may increase misrepresentation under certain conditions.

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Acknowledgements

Acknowledgments

Thanks to Robert Ramsay and Richard Smith for detailed comments on earlier versions of this chapter. Thanks also to participants at workshops at the University of Kentucky, Kent State University, the 2017 AAA Annual Meeting of the AAA, the 2010 and 2011 Management Accounting Section and 2011 AAA Ohio Region Research Conferences for comments and suggestions, and, to the Von Allmen School of Accounting and the Institute of Management Accountants for generous financial support.

Citation

Miller, T.C., Peffer, S.A. and Stone, D.N. (2023), "How Contextually Dependent, Non-monetary Preferences Influence Cost Reporting Misrepresentations", Akroyd, C. (Ed.) Advances in Management Accounting (Advances in Management Accounting, Vol. 35), Emerald Publishing Limited, Leeds, pp. 73-98. https://doi.org/10.1108/S1474-787120230000035004

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Emerald Publishing Limited

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