Shared Interest and Honesty in Budget Reporting

Posted: 5 Apr 2012

See all articles by Bryan K. Church

Bryan K. Church

Georgia Institute of Technology - Accounting Area

R. Lynn Hannan

Tulane University - A.B. Freeman School of Business

Xi (Jason) Kuang

Georgia Institute of Technology - Scheller College of Business

Date Written: April 5, 2012

Abstract

This study uses two experiments to investigate the honesty of managers’ budget reports when the financial benefit resulting from budgetary slack is shared by the manager and other non-reporting employees. Drawing on moral disengagement theory, we predict that the shared interest in slack creation makes misreporting more self-justifiable to the manager and, therefore, leads to lower honesty. Consistent with our prediction, the results of our first experiment show that managers report less honestly when the benefit of slack is shared than when it is not shared, regardless of whether others are aware of the misreporting. Our second experiment investigates whether the preferences of the beneficiaries of the slack affect managers’ honesty. We predict that managers’ honesty will be improved when the beneficiaries of the slack have a known, higher-order preference for truthful reporting. Consistent with our prediction, the results show that managers report more honestly when other employees have a known preference for honesty than otherwise. The implications of our findings for management accounting research and practice are discussed.

Suggested Citation

Church, Bryan K. and Hannan, Rebecca Lynn and Kuang, Xi (Jason), Shared Interest and Honesty in Budget Reporting (April 5, 2012). Accounting, Organizations and Society, Vol. 37, 2012, Available at SSRN: https://ssrn.com/abstract=2035062

Bryan K. Church

Georgia Institute of Technology - Accounting Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-3907 (Phone)
404-894-6030 (Fax)

Rebecca Lynn Hannan

Tulane University - A.B. Freeman School of Business ( email )

6823 St Charles Ave
New Orleans, LA 70118
United States

Xi (Jason) Kuang (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St., NW
Atlanta, GA 30308-1149
United States

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