Rotten Apples and Sterling Examples: Moral Reasoning and Peer Influences on Honesty in Managerial Reporting
37 Pages Posted: 21 Aug 2012 Last revised: 25 Jun 2014
Date Written: April 6, 2014
We propose that idiosyncratic benefits from adhering to social norms explain the heterogeneity in honesty documented in many situations where misrepresentation yields a financial benefit. Further, information about the honesty of one's peers modifies the descriptive norm and hence, one's own honesty. We test these hypotheses in a reporting experiment with two managers in which one manager observes the reports of a peer. Managers’ honesty decreases when peers are less honest and increases when peers are more honest. The importance of the maintaining norms schema — assessed by the DIT-2 — explains these adjustments and, moreover, explains variation in reporting honesty in vacuo.
Keywords: Financial incentives, Non-financial incentives, Compensation, Earnings management, honesty, dishonesty, peer effects, social norms, social preference
JEL Classification: C72, D03, J44, M41, M55
Suggested Citation: Suggested Citation