Earnings Benchmarks, Information Systems, and Their Impact on the Degree of Honesty in Managerial Reporting

41 Pages Posted: 20 Aug 2010 Last revised: 13 Oct 2015

See all articles by Eddy Cardinaels

Eddy Cardinaels

Tilburg University - Tilburg University School of Economics and Management; KU Leuven

Date Written: September 2015

Abstract

This paper provides experimental evidence about how the interaction between a company’s earnings and its information system influences the degree of honest reporting by managers in a capital budgeting task. Specifically, the results show that participants overstate cost less when the manager’s cost report determines whether the firm earns a gain or loss than when their report does not affect whether the firm earns a profit or loss (i.e., the firm always earns either a profit or loss regardless of the cost report). Further, the results suggest that the impact of the earnings situation on the degree of honesty depends on whether the firm uses an information system that improves its ability to detect misreporting. Specifically, the earnings situation has less effect on the degree of honesty when the firm uses an information system. This is because the information system decreases honesty when the manager’s report determines whether the firm earns a profit or loss but increases it otherwise. This study provides important insights into the conditions under which information systems can crowd out prosocial behavior.

Keywords: Honesty, capital budgeting, earnings, information system, prosocial behavior

JEL Classification: C91, D82, M41

Suggested Citation

Cardinaels, Eddy, Earnings Benchmarks, Information Systems, and Their Impact on the Degree of Honesty in Managerial Reporting (September 2015). AAA 2011 Management Accounting Section (MAS) Meeting Paper, Available at SSRN: https://ssrn.com/abstract=1655821 or http://dx.doi.org/10.2139/ssrn.1655821

Eddy Cardinaels (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31 134668231 (Phone)

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/?uid=e.cardinaels

KU Leuven ( email )

Naamsestraat 69
Leuven, B-3000
Belgium
+32 16326984 (Phone)

HOME PAGE: http://www.kuleuven.be/wieiswie/nl/person/00013472

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
275
Abstract Views
1,674
rank
121,383
PlumX Metrics