How do managers react to a Peer’s situation? The influence of environmental similarity on budgetary reporting

Posted: 20 Aug 2012 Last revised: 9 Jul 2020

See all articles by James N. Cannon

James N. Cannon

Utah State University, School of Accountancy; Iowa State University

Todd A. Thornock

University of Nebraska at Lincoln - School of Accountancy

Date Written: November 8, 2018

Abstract

We investigate the impact the degree of similarity between one’s decision environment and that of a referent peer has on budgetary reporting. Self-categorization theory suggests that greater environmental similarity leads individuals to adjust their behavior to adhere to the social norms of peers within the same environment. We look at a reporting environment where managers can observe environmental similarity but cannot observe peers’ behavior (e.g., managers do not communicate their budget reports between departments). In this setting, we find that managers facing a similar decision environment to that of a peer manager report higher budgets than managers facing a dissimilar decision environment. Further, consistent with the idea that managers base their perceptions about the group’s social norms on their own desired behavior when peer behavior is unobservable, we find evidence that managers predict peers to report as they would, given similar environmental circumstances. Our findings provide a valuable insight into how peer environments, without knowledge of peer actions, can subtly affect managerial behavior.

Keywords: budgetary reporting, slack, environmental similarity, self-categorization, consensus effect, workforce change

Suggested Citation

Cannon, James N. and Thornock, Todd A., How do managers react to a Peer’s situation? The influence of environmental similarity on budgetary reporting (November 8, 2018). Management Accounting Research, Vol. 44, 2019, Available at SSRN: https://ssrn.com/abstract=2132999 or http://dx.doi.org/10.2139/ssrn.2132999

James N. Cannon

Utah State University, School of Accountancy ( email )

3500 Old Main Hill
Logan, UT 84322-3500
United States
801-927-7718 (Phone)

Iowa State University ( email )

Ames, IA 50011-2063
United States
801-927-7718 (Phone)

Todd A. Thornock (Contact Author)

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

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