Hardening Soft Special-Purpose Accounting Information

Abstract:     
This study provides theory-consistent field evidence on how managers reduce information asymmetries by hardening soft accounting information. The accounting information that requires hardening is soft special-purpose accounting information that is potentially biased (e.g., ad hoc activity-based costing, ad hoc benchmarking, special accounting studies) for use outside the relevant range of routinely reported general-purpose accounting information. Once hardened, this information will be used to solve a non-routine organizational problem caused by an economic crisis (e.g., achieving managerial agreement on a plan to rapidly reduce controllable costs by 50 percent to enable their organization to survive). The causal mechanism for hardening soft accounting information is social persuasion, which consists of information and management triangulation to identify, correct, and elaborate on differences and similarities in multiple sets of accounting information. Social persuasion is expected to require comparable special-purpose accounting information (accounting information that identifies similarities and differences among multiple measures of identical and/or similar cost objects such as activities, subunits, and processes) and competitive assessment (debates about the hardness of the accounting information among managers who are winners and losers from hardening the soft special-purpose accounting information when the information is used to solve a non-routine problem). The field evidence reported supports this expectation.

Keywords: Activity-based costing, benchmarking, comparable accounting information, cross-functional groups, hardening accounting information, information triangulation, management triangulation, social incentives, social persuasion, special accounting studies, special-purpose accounting information

JEL Classifications: M40, M46, M54

Working Paper Series