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Abstract:
We explore how two key aspects of accounting information affect trusting behavior between unknown parties in a bilateral negotiation. The two aspects include the fineness/coarseness of cost information that can be utilized during the negotiation and the profit/loss frame induced by accounting information going into the negotiation. Based on several streams of literature related to trust, we develop a theoretical model of the antecedents and consequences of trusting behavior. Specifically, we provide a model linking accounting contextual variables to perceived risk, trusting behavior, and negotiation outcomes. We conducted an experiment using 148 participants (74 negotiating pairs) to test our hypothesized model. We measured trusting behavior as the negotiator's choice to share or not share private cost information with their negotiating partner. The consequences of trusting behavior include the economic outcome of the negotiation as well as the negotiator's perceived satisfaction with the negotiation process and with the other negotiator. Our main findings demonstrate that accounting information fineness is negatively related to trusting behavior and a loss frame is positively related to trusting behavior. Furthermore, we find significant and positive links between trusting behavior and both economic outcomes and satisfaction with the negotiation process. Overall, our study contributes to the literature by establishing a more comprehensive model of the relationships between aspects of accounting information, risk perceptions, trusting behavior, and negotiation outcomes.

trust, negotiation, accounting information characteristics, risk propensity, fineness

Abstract:
Negotiations between buyers and suppliers that require sharing cost details to identify profitable relationship specific investments often fail and result in hold-ups. Based on inequity aversion, strategic uncertainty, and risk dominance criteria, we expect negotiators to be more reluctant to share fine information (ABC) than coarse, less detailed information (VBC), which suggests that fine information systems like ABC can exacerbate hold-ups. When negotiators share fine information they achieve more efficient bargaining agreements. However, we find that strategic concerns about inequitable outcomes (fear of opportunistic behavior) lead fewer negotiating pairs to share fine information (where inequitable outcomes can be larger) than coarse information (where inequitable outcomes are smaller). Our results demonstrate that information fineness leads negotiators to trade-off potential utility losses due to fairness considerations and potential monetary gains. Fewer (more) negotiators chose to share fine (coarse) information and thus minimize fairness based utility losses (maximize monetary gains).

Activity-based costing, hold-up problem, inequity aversion, buyer-supplier relations

Abstract:
Efficient contracting involves reducing the losses in wealth due to bargaining impasses, time and effort spent in negotiating, delays in implementing profitable projects, and second-best agreements. Properties of accounting systems play a significant role when bargainers haggle over accounting-based payoffs. This paper shows that bilateral bargaining requires more time and generates more reported subjective disutility when the accounting information used in contracting creates greater uncertainty about payoffs. We develop an argument linking accounting-based common uncertainty to the information asymmetry about bargainers' payoffs that drives bargaining costs. We also distinguish between two kinds of uncertainty: first-order uncertainty or simple risk (uncertainty about outcomes) and second-order uncertainty (uncertainty about probability distributions of outcomes). In an experimental setting, we show that the presence of second-order uncertainty increases bargaining costs, holding first-order uncertainty constant at a moderately high level. We also find that bargainers whose payoffs are affected by second-order uncertainty demand and receive a higher premium than bargainers whose payoffs are affected by simple risk only.