Can Wages Buy Honesty? The Relationship Between Relative Wages and Employee Theft

Journal of Accounting Research 50(4), 2012: 967-1000

Posted: 18 Sep 2009 Last revised: 21 Sep 2012

Clara Xiaoling Chen

University of Illinois at Urbana-Champaign - Department of Accountancy

Tatiana Sandino

Harvard Business School - Accounting and Control

Date Written: 2012

Abstract

In this study we examine whether, for a sample of retail chains, high levels of employee compensation can deter employee theft, an increasingly common type of fraudulent behavior. Specifically, we examine the extent to which relative wages (i.e., employee wages relative to the wages paid to comparable employees in competing stores) affect employee theft as measured by inventory shrinkage and cash shortage. Using two store-level datasets from the convenience store industry, we find that relative wages are negatively associated with employee theft after we control for each store’s employee characteristics, monitoring environment, and socio-economic environment. Moreover, we find that relatively higher wages also promote social norms such that coworkers are less (more) likely to collude to steal inventory from their company when relative wages are higher (lower). Our research contributes to an emerging literature in management control that explores the effect of efficiency wages on employee behavior and social norms.

Keywords: Wages, employee compensation, management control, employee theft, reciprocity, gift exchange, social norms, retail chains

JEL Classification: C93, M46

Suggested Citation

Chen, Clara Xiaoling and Sandino, Tatiana, Can Wages Buy Honesty? The Relationship Between Relative Wages and Employee Theft (2012). Journal of Accounting Research 50(4), 2012: 967-1000. Available at SSRN: https://ssrn.com/abstract=1475276 or http://dx.doi.org/10.2139/ssrn.1475276

Clara Xiaoling Chen

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Tatiana Sandino (Contact Author)

Harvard Business School - Accounting and Control ( email )

367 Morgan Hall
Soldiers Field
Boston, MA 02163
United States
617-495-0625 (Phone)

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