Subordinate perceptions of the superior and agency costs: Theory and evidence

Douthit, Jeremy; Majerczyk, Michael

doi:10.1016/j.aos.2019.07.003

Cited by 22 publications

(10 citation statements)

References 36 publications

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“…This method of role assignment increases external validity because, in practice, ability and/or merit are often considered in promotion decisions. Douthit and Majerczyk () find that when role assignment is based on legitimate procedures (such as ours) compared to when it is random, subordinates misreport less. In addition, assigning roles using an ability‐sensitive task that is unrelated to the main decisions in the experiment is consistent with recent economics studies that examine how horizontal wage differences affect employee behavior in the laboratory (e.g., Gross et al ; Bolton and Werner ).…”

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confidence: 86%

Vertical Pay Dispersion, Peer Observability, and Misreporting in a Participative Budgeting Setting

Guo

Libby

Liu

et al. 2019

Contemporary Accting Res

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In this study, we examine the joint effect of vertical pay dispersion and peer observability on subordinates' misreporting choices. We adopt a participative budgeting setting in which two subordinates report to one superior, and we manipulate vertical pay dispersion (low/high) and peer observability (absent/present). Subordinates have private information about actual project costs and can over‐report project costs to the superior without detection and thus create budgetary slack. When a peer's reporting choices are observable, we predict and find that peer reporting choices have an asymmetric influence on the focal subordinates' reporting choices, and this asymmetric influence depends on the level of vertical pay dispersion. Specifically, we find that when vertical pay dispersion is low, subordinates who observe peer reports containing low slack misreport less, whereas observing peer reports that contain high slack has no significant effect. However, when vertical pay dispersion is high, subordinates who observe peer reports containing high slack misreport more, whereas observing peer reports that contain low slack has no significant effect. Driven by these asymmetric effects, subordinates misreport less in the presence of peer observability than in its absence when vertical pay dispersion is low and misreport more in the presence of peer observability than in its absence when vertical pay dispersion is high. Overall, our findings suggest that when a firm has a more egalitarian pay structure (i.e., low vertical pay dispersion), an open information policy is conducive to a more honest reporting environment, whereas under a more hierarchical pay structure (i.e., high vertical pay dispersion), open information policies can compromise the honesty of subordinates' reports.

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confidence: 86%

Vertical Pay Dispersion, Peer Observability, and Misreporting in a Participative Budgeting Setting

Guo

Libby

Liu

et al. 2019

Contemporary Accting Res

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“…As a consequence, individuals who earn the money have a different view on what is "fair," their other-regarding preferences move toward their own advantage, and they make more selfish decisions (i.e., they keep more money for themselves and offer less to the other person). Accounting research likewise concludes from experiments that feelings of deservingness relate to opportunistic reporting (Brown et al 2016;Douthit and Majerczyk 2019). In a similar vein, individuals who exert more effort to earn information can more easily justify opportunistic reporting.…”

Section: Information Acquisition and Other-regarding Preferencesmentioning

confidence: 99%

The Effects of Information Acquisition Effort, Psychological Ownership, and Reporting Context on Opportunistic Managerial Reporting*

Haesebrouck

2021

Contemporary Accting Res

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Within the context of managerial reporting, the tasks of acquiring and reporting information are logically connected. Although the accounting literature acknowledges their importance, it often treats these tasks as distinct processes. I investigate how the effort exerted to acquire information influences managers' reporting. Managers' information acquisition effort can induce psychological ownership that can lead to a sense of deservingness that increases opportunistic reporting or to a sense of responsibility that reduces opportunism. I predict that the reporting context determines the ultimate effect of information acquisition effort on reporting behavior. I test this prediction with a 2Â2 budget reporting experiment. Managers are either endowed with information to report or required to exert effort to earn it, with the latter expected to generate more psychological ownership. In addition, I manipulate the saliency of honesty in the reporting context by framing reporting in terms of a business dilemma (less salient honesty) or an ethical dilemma (more salient honesty). I find that when honesty is less salient, managers build more slack into their report under earned information than endowed information. In contrast, more salient honesty alleviates the effect of earned information on slack. In a supplemental experiment, I find similar results when all managers are endowed with information to report but psychological ownership is manipulated via different firm messaging. These results have important implications for theory and practice. For example, in a less salient honesty context, technological investments that reduce managers' effort needed to acquire information can also help decrease opportunistic reporting.

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“…If subordinates see foregoing slack as a loss, this would reduce the ability of NAI to predict preferences for honesty. However, it is more likely that subordinates view slack as a gain than foregoing slack as loss due to the property rights implicit in participative budgeting (Douthit and Majerczyk 2018).…”

Section: [Insert Figure 1 About Here]mentioning

confidence: 99%

“…To the extent that individuals view foregoing slack as a loss of wealth, it is possible that not misreporting could also cause negative affect and limit NAI's predictive ability. However, this argument ignores the implicit property rights in the participative budgeting setting (Douthit and Majerczyk 2018). 3 We test our theory with an incentivized experiment where we measure NAI using the Affect Intensity Measure psychometric inventory (Larsen, Diener, and Emmons 1986) prior to a participative budgeting task.…”

Section: Introductionmentioning

confidence: 99%

Why don't people lie? Negative affect intensity and preferences for honesty in budgetary reporting

Blay

Douthit

Fulmer

2019

Management Accounting Research

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Budgets are instrumental in management control systems but are prone to gaming behavior that creates slack and limits the effectiveness of budgets. Research suggests, however, that subordinates have preferences for adhering to a social norm of honesty that limits slack in their budgetary reporting. As such, an increased understanding of subordinates' preferences for honesty can improve participative budgeting systems. We develop and test theory that increases our understanding of the drivers of preferences for honesty. We test the theory that preferences for honesty originate from an individual's desire to avoid negative affect from violating social norms. Further, individuals systematically differ in the intensity with which they experience their negative affective reactions. Those with higher levels of this intensity (negative affect intensity, NAI), experience more negative affect and disutility from violating a norm of honesty. Thus, NAI is predictive of subordinates' preference for honesty. Experimental results support our theory. Budgetary slack is constrained by preferences for honesty and NAI increases preferences for honesty. As such, preferences for honesty are a stronger informal control for subordinates with higher NAI. We discuss the implications of our theory for contract design and job assignment.

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Subordinate perceptions of the superior and agency costs: Theory and evidence

Cited by 22 publications

References 36 publications

Vertical Pay Dispersion, Peer Observability, and Misreporting in a Participative Budgeting Setting

Vertical Pay Dispersion, Peer Observability, and Misreporting in a Participative Budgeting Setting

The Effects of Information Acquisition Effort, Psychological Ownership, and Reporting Context on Opportunistic Managerial Reporting*

Why don't people lie? Negative affect intensity and preferences for honesty in budgetary reporting

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