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

Abstract

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.

Psychology in management accounting and control research: an overview of the recent literature

“…Social psychology (44) is the most utilized subfield, followed by cognitive psychology (27). Most of the articles drawing on social psychology build their theoretical foundations using social comparison theory (e.g., Hannan et al 2013;Tafkov 2013;Knauer et al 2017), social norms (e.g., Fisher et al 2000;Maas and van Rinsum 2013;Blay et al 2019), attribution theory (e.g., Coletti et al 2005;Hartmann and Slapničar 2009), or social identity theory (e.g., Towry 2003;Hiller et al 2014;Tian et al 2016). Prospect theory (e.g., Oblak et al 2018), mental models (e.g., Kadous and Sedor 2003;Hall 2011), and cognitive biases (e.g., Libby et al 2004;Fehrenbacher et al 2018) are concepts from cognitive psychology that are frequently employed.…”

“…Most articles on these subtopics investigate participative budgeting settings and were published after 2010; three were published as recently as the first half of 2019. We find a strong focus on social psychology and the concept of social norms therein (e.g., Fisher et al 2000;Stevens 2002;Brown et al 2017;Blay et al 2019).…”

“…Social norms are used to provide evidence that the aspects of the participative budgeting process (Fisher et al 2000), reputation and feelings of ethical responsibility (Stevens 2002), preferences for honesty (Blay et al 2019) and the choice of who sets the budget (Brown et al 2017) reduce slack or positively influence performance.…”

“…Regarding MAC topics, most articles examine aspects of performance measurement and evaluation, followed by aspects of compensation, rewards, and incentives and aspects of budgeting. Specifically, subjective performance evaluations and subjective measures (e.g., Kunz 2015;Bol and Leiby 2018), incentive contract framing and compensation contract selection questions (e.g., Tafkov 2013;Reichert and Woods 2017), and budgetary slack and honesty in budgeting (e.g., Brown et al 2014;Blay et al 2019) are very frequently investigated using psychology-based theoretical perspectives. Further, we find that social psychology is the predominant subfield of psychology applied to MAC research.…”

Pengaruh Partisipasi Anggaran, Komitmen Organisasi, Gaya Kepemimpinan Transformasional, Asimetri Informasi pada Budgetary Slack Hotel Berbintang

“…Partisipasi anggaran dapat digunakan untuk meminimalisir terjadinya penyimpangan yang dilakukan oleh karyawan akibat adanya anggaran yang disering dipandang sebagai alat manajemen dalam menekan, memotivasi, serta mengendalikan bawahan. Hal ini sesuai dengan pendapat Blay, et al (2019) yang menyatakan bahwa partisipasi anggaran dapat meningkatkan perencanaan dan pengendalian perusahaan apabila bawahan bersedia menyampaikan informasi pribadi mereka tanpa adanya informasi yang bias. Menurut Brownell & McInnes (1983) dalam Derfuss (2009) partisipasi anggaran didefinisikan sebagai seberapa jauh keterlibatan serta pengaruh manajer unit dalam penyusunan anggaran unitnya.…”