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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.

Purpose — The aim of this chapter is to explain the concepts of honesty and dishonesty in management and provide a general understanding why and how honesty and dishonesty may manifest in different ways.Design/methodology/approach — This conceptual chapter discusses what (dis)honesty is, which factors affect it and which consequences result from it. It is illustrated with several short examples.Findings — (Dis)honesty is a complex concept. It is not always possible to classify a certain act as honest or dishonest: sometimes, it is in the ‘grey area’. Moreover, the understanding what is honest and what is not depends on the cultural context. Thus, the term (dis)honesty may be sometimes more appropriate.Originality/value — The complexity of (dis)honesty in management (encompassing its nature, impact factors and consequences) has received relatively little research attention.

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.

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.

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.

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.

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

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.

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.

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.

We use a laboratory experiment to examine a multitask environment common to practice, in which managers have multiple responsibilities, including both managerial reporting, as in participative budgeting settings, and effort provision toward daily tasks. Consistent with typical contracting arrangements, we examine incomplete contracts where honesty and effort are not enforceable. In such a multitask environment, when employers choose to offer comparatively generous wages to managers, we predict that managers will elect to provide higher effort. Meanwhile, we remain agnostic ex ante about the degree of misreporting due to findings in studies on gift exchange, moral licensing, and moral wiggle room. Overall, we find evidence that reciprocity, consistent with the gift-exchange model, does extend across both tasks. Implications for theory and practice are discussed.

Purpose — This chapter aims to present the way how to think about honesty in leadership, practically and simply on an example of the Czech Republic.Design/methodology/approach — This chapter discusses what (dis)honesty in leadership is, how it manifests and how it is perceived in the Czech Republic. It is illustrated with corruption statistics and a short interview with a Czech top manager from Microsoft.Findings — Contemporary leadership models accentuate soft side of leading personalities, including emotion, integrity, communication, networking, and serving others. Honesty belongs to necessary characteristics of effective leaders. Among Czech culture standards, several values are associated with integrity and honesty, particularly generosity, care about relatives, and confidence based on social relations as well as high evaluation of human behavior. The main weaknesses are low acceptance of formal structures and rules, the importance of informal communication, a strong tendency to conflicts and personal interpretation of any criticism.Originality/value — The complexity of (dis)honesty in leadership (encompassing its nature and impact factors) has received relatively little research attention.

Purpose — This study explores organizational ‘honesty’ when implementing corporate community initiatives (CCIs) with a particular focus on those community projects which are carried out in developing countries.Design/methodology/approach — This exploratory chapter adopts a qualitative case study approach and uses both primary and secondary data.Findings — The exploratory examination of organizational ‘honesty’ in relation to the ‘motives, decision-making and outcomes’ when implementing CCIs, provides unique findings which indicate the multi-faceted nature of organizational motives, the engagement of salient stakeholders in CCIs’ implementation and the underlying economic nature of the expected outcomes from the initiatives which are largely considered to be socially progressive. Framework consisting of four evaluative criteria is proposed as a possible evaluative framework to examine organizational ‘honesty’ in the implementation of CCIs.Research limitations — Although this study provides an initial explorative perspective of the debate on organizational ‘honesty’ in corporate social responsibility (CSR), it is limited by its scope and generalizability of the findings as it was based only on three cases.Originality/value — The chapter provides a unique and internal perspective of the manifestation of organizational ‘honesty’ in the implementation of CCIs. It shows that determining such ‘honesty’ within CCIs is complex and requires an in-depth assessment of a range of evaluative criteria.

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.