Working Harder but Lying More? How Managers' Effort Influences Their Reporting

45 Pages Posted: 18 Aug 2015 Last revised: 15 Dec 2015

See all articles by Jason Brown

Jason Brown

Indiana University - Kelley School of Business - Department of Accounting

Eric W. Chan

University of Texas at Austin - Department of Accounting

Willie Choi

University of Wisconsin - Madison

John Evans

University of Pittsburgh - Katz Graduate School of Business

Donald V. Moser

University of Pittsburgh - Accounting Group

Date Written: December 1, 2015

Abstract

Many firms decentralize their operational and accounting functions, such that managers are responsible for both making operational decisions that affect firm performance and reporting the privately observed performance outcomes of those operational decisions to higher-level managers. Importantly, in such settings, the operational decision is “sunk” at the time of the reporting decision. We investigate how managers’ previous operational effort (hereafter, simply “effort”) affects their subsequent reporting decision. We predict that providing greater effort increases a manager’s sense of deservingness and that when managers privately observe an unfavorable performance outcome, those with a greater sense of deservingness are more likely to misreport. We find support for these predictions in an experiment that includes both a between-participant component and a within-participant component. In addition, consistent with our theory, we find evidence that deservingness mediates the effect of effort on misreporting. Collectively, our findings highlight a potential cost of decentralizing operational and accounting functions.

Keywords: Moral hazard, managerial reporting, honesty, deservingness

Suggested Citation

Brown, Jason and Chan, Eric W. and Choi, Jongwoon and Evans, John Harry and Moser, Donald V., Working Harder but Lying More? How Managers' Effort Influences Their Reporting (December 1, 2015). AAA 2016 Management Accounting Section (MAS) Meeting Paper, Available at SSRN: https://ssrn.com/abstract=2646308

Jason Brown

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Eric W. Chan

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States

Jongwoon Choi (Contact Author)

University of Wisconsin - Madison ( email )

Wisconsin School of Business
975 University Avenue
Madison, WI 53706
United States

John Harry Evans

University of Pittsburgh - Katz Graduate School of Business ( email )

230 Mervis Hall
Pittsburgh, PA 15260
United States

Donald V. Moser

University of Pittsburgh - Accounting Group ( email )

264 Mervis Hall
Pittsburgh, PA 15260
United States
412-648-1726 (Phone)
412-648-1693 (Fax)

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