What’s Fair Depends on What I Start With: The Influence of an Outcome Decision Aid and Initial Economic Position on Cost Reporting Misrepresentation

33 Pages Posted: 14 Aug 2010

See all articles by Timothy Charles Miller

Timothy Charles Miller

Xavier University - Department of Accountancy

Sean A. Peffer

University of Kentucky - Gatton College of Business and Economics

Dan N. Stone

University of Kentucky - Von Allmen School of Accountancy

Date Written: August 12, 2010

Abstract

Managers can use private information to strategically misrepresent costs and consume additional resources at the expense of the firm. However, past research has demonstrated that managers do not always fully misrepresent, thus failing to display economically rational decision making. This paper proposes that misrepresentation is a joint function of managers’ economic self interest and situation-dependent, fairness beliefs. Specifically, managers choose a culturally defensible fairness belief that maximizes self-interest, given an initial “advantaged” or “disadvantaged” economic position. Experimental results show that “advantaged” managers, i.e., those who receive more than do comparable managers misrepresent less, while “disadvantaged” managers, i.e., those who receive less than do comparable managers misrepresent more. An accounting decision aid that increases the salience of the consequences of the misrepresentation increases this effect. The results suggest that managers’ initial economic positions influence implemented fairness beliefs. In addition, increasing the salience of the effect of a managers’ decisions -- for example, through the use of an accounting system -- can increase or decrease misrepresentation, depending upon initial economic position.

Keywords: misrepresentation, decision aids, fairness, morality, social comparison

JEL Classification: M46, M40

Suggested Citation

Miller, Timothy Charles and Peffer, Sean and Stone, Dan N., What’s Fair Depends on What I Start With: The Influence of an Outcome Decision Aid and Initial Economic Position on Cost Reporting Misrepresentation (August 12, 2010). AAA 2011 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1658052 or http://dx.doi.org/10.2139/ssrn.1658052

Timothy Charles Miller (Contact Author)

Xavier University - Department of Accountancy ( email )

United States

Sean Peffer

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
606-257-3149 (Phone)
606-257-3654 (Fax)

Dan N. Stone

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States
859-257-3043 (Phone)
859-257-3654 (Fax)

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