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Book part
Publication date: 23 August 2014

Andrea R. Drake, Linda J. Matuszewski and Fabienne Miller

There has been a call for additional managerial accounting research that examines the effect of non-pecuniary preferences (such as those for honesty and fairness) on managerial…

Abstract

Purpose

There has been a call for additional managerial accounting research that examines the effect of non-pecuniary preferences (such as those for honesty and fairness) on managerial reporting decisions.

Methodology/approach

Drawing from trait theory, agency theory, and psychological contracts theory, Kidder (2005) suggests that personality traits and perceived unfairness in the workplace both help predict detrimental workplace behaviors, with perceived fairness affecting the honesty in reporting of some individuals but not others. We test Kidder’s (2005) theory in an experimental setting where participants have opportunity and incentive to report dishonestly.

Findings

Participants’ honesty preferences and ethical values (idealism and relativism) were measured, and the fairness of the participants’ employment contracts was manipulated. As predicted, higher preferences for honesty are significantly associated with honesty in reporting, suggesting that participants make trade-offs between increasing their own wealth and acting honestly. Additionally, the perceived fairness of compensation interacted with honesty preferences and relativism to affect honesty in reporting.

Practical and social implications

The implication for practice is that while a small number of employees are likely to consistently behave in honest or self-interested ways, firms may be able to positively influence the behavior of the majority of employees by enacting policies and procedures that contribute to perceptions that compensation is fair.

Originality/value of paper

These findings contribute to our understanding of non-pecuniary preferences on managerial reporting decisions.

Details

Advances in Management Accounting
Type: Book
ISBN: 978-1-78190-842-6

Keywords

Book part
Publication date: 24 October 2023

Timothy C. Miller, Sean A. Peffer and Dan N. Stone

This study contributes to the participative budgeting and budget misrepresentation literature by exploring: (1) whether managers’ judgments of fair behaviors are malleable and…

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.

Details

Advances in Management Accounting
Type: Book
ISBN: 978-1-83753-917-8

Keywords

Article
Publication date: 3 June 2019

Janet R. Jones, Amy Foshee Holmes, Mary Fischer and Brooklyn Cole

The purpose of this paper is to investigate how trust, honesty and transparency impact the willingness and timeliness of communicating financial information between Government…

Abstract

Purpose

The purpose of this paper is to investigate how trust, honesty and transparency impact the willingness and timeliness of communicating financial information between Government Finance Officers (GFOs) and members of the municipal boards they serve.

Design/methodology/approach

Survey data was collected from professionals who work with municipalities to ensure government resources are properly managed. Nonparametric local-linear regression was used to analyze the data.

Findings

Evidence suggests that trust in the board, GFO preference for honesty and greater transparency of the municipality influence the timeliness of communication. There is evidence that when the GFO and board members have a working relationship built on trust and the GFO has a preference for honesty, the GFO is more willing to share positive information with the board. In addition, there is evidence that with greater transparency and trust in the board, there is a reduction in the time of sharing positive information in situations where there is little discretion in disclosing and less willingness to share information.

Research limitations/implications

A principal limitation of this study is the small sample size. In addition, the study was conducted using only participants from the pool of members of the Government Finance Officers Association of Texas. As an exploratory study, the survey included a minimal number of questions to gather data from actual GFOs and included only six possible scenarios. The time constraint resulted in a reduced number of questions related to the models used. Other limitations include the potential of missing variables, factors or perceptions related to scenarios not presented in the survey instrument.

Practical implications

The findings suggest that with greater transparency, there is less time between the event and the GFO communication to the board providing the opportunity to improve the effectiveness of the decision-making process.

Originality/value

This study is the first to explore the effects of increased transparency on the level of communication between the GFO and the board.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 31 no. 2
Type: Research Article
ISSN: 1096-3367

Keywords

Book part
Publication date: 18 January 2023

Wilfred W. H. Cheng, Chee Yeow Lim and Katherine C. K. Yuen

This study investigates the effect of honesty reminders on budgetary slack. Based on self-concept maintenance theory, the authors posit that honesty reminders can reduce budgetary…

Abstract

This study investigates the effect of honesty reminders on budgetary slack. Based on self-concept maintenance theory, the authors posit that honesty reminders can reduce budgetary slack by making people more aware of their own standards of honesty, resulting in more honest behavior. Using an experimental research design, the authors find evidence that honesty reminders reduce budgetary slack. The authors also find that although penalties can similarly reduce budgetary slack, they tend to cause distrust and resentment from subordinates. Therefore, honesty reminders may be a less costly method than penalties for reducing budgetary slack.

Book part
Publication date: 8 August 2014

Michael Paz, Bernhard E. Reichert and Alex Woods

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…

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.

Details

Advances in Accounting Behavioral Research
Type: Book
ISBN: 978-1-78190-838-9

Keywords

Article
Publication date: 14 March 2018

Alisa G. Brink, Jennifer C. Coats and Frederick W. Rankin

Participative budgeting can benefita firm by incorporating subordinates’ private information into financing and operating decisions. In the managerial accounting literature…

1134

Abstract

Participative budgeting can benefita firm by incorporating subordinates’ private information into financing and operating decisions. In the managerial accounting literature, studies of participative budgeting posit superiors that range from passively committed to highly active participants, some of whom are permitted to communicate, choose compensation schemes, negotiate with subordinates, and reject budgets. This paper synthesizes and analyzes experimental research in participative budgeting with a focus on the role of the superior defined in the research design, and on how that role affects budget outcomes, subordinate behavior, and in some cases superior behavior. We demonstrate how superior type influences economic and behavioral predictions, and likewise affects budgeting outcomes and the interpretation of the results. This paper is intended to further our understanding of how superior type affects behavior in participative budgeting studies, and to facilitate the choice of superior type in future research designs.

Details

Journal of Accounting Literature, vol. 41 no. 1
Type: Research Article
ISSN: 0737-4607

Keywords

Book part
Publication date: 18 January 2023

Chaoping Li and Andrea Drake

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…

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.

Details

Advances in Management Accounting
Type: Book
ISBN: 978-1-80382-031-6

Keywords

Book part
Publication date: 27 October 2016

Brian K. Laird and Charles D. Bailey

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…

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.

Details

Research on Professional Responsibility and Ethics in Accounting
Type: Book
ISBN: 978-1-78560-973-2

Keywords

Book part
Publication date: 16 July 2019

Charles Bailey, Nicholas Fessler and Brian Laird

The authors investigate the joint effects of two environmental variables, performance-based pay (PBP) and performance monitoring (PM), on behavioral dishonesty in a setting where…

Abstract

The authors investigate the joint effects of two environmental variables, performance-based pay (PBP) and performance monitoring (PM), on behavioral dishonesty in a setting where the controls subsequently are absent. In a laboratory study using 88 participants in a 2×2 experimental design, simulating a work environment, the authors manipulate the presence of PBP and PM. Once the participants are accustomed to their assigned work environment and have completed contractual tasks unrelated to the dishonesty experiment, the authors allow them to privately roll dice to determine the size of a bonus gift card. Dishonesty levels are inferred from differences between treatment groups in the prizes claimed. The authors find an interaction effect, where inferred dishonesty in the performance-based-pay group is higher than the fixed-pay group when there is no PM, but lower when there is PM. Although theory and existing literature did not lead us to hypothesize these exact results, they offer important insights into a complex relationship. By jointly examining the effects of worker contracts and workplace monitoring on dishonesty, this research extends the understanding of the potential consequences of formal controls. As the workplace grows more complex, employers increasingly rely on information provided by frontline employees and managers. Thus, unintended effects of managerial controls on honesty are an important topic in the business literature.

Details

Advances in Management Accounting
Type: Book
ISBN: 978-1-78973-278-8

Keywords

Book part
Publication date: 20 January 2021

Vincent K. Chong, Michele K. C. Leong and David R. Woodliff

This paper uses a laboratory experiment to examine the effect of accountability pressure as a monitoring control tool to mitigate subordinates' propensity to create budgetary…

Abstract

This paper uses a laboratory experiment to examine the effect of accountability pressure as a monitoring control tool to mitigate subordinates' propensity to create budgetary slack. The results suggest that budgetary slack is (lowest) highest when accountability pressure is (present) absent under a private information situation. The results further reveal that accountability pressure is positively associated with subordinates' perceived levels of honesty, which in turn is negatively associated with budgetary slack creation. The findings of this paper have important theoretical and practical implications for budgetary control systems design.

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