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

See all articles by Steven J. Huddart

Steven J. Huddart

Pennsylvania State University, University Park - Department of Accounting

Hong Qu

Kennesaw State University - Michael J. Coles College of Business

Date Written: April 6, 2014

Abstract

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

Huddart, Steven J. and Qu, Hong, Rotten Apples and Sterling Examples: Moral Reasoning and Peer Influences on Honesty in Managerial Reporting (April 6, 2014). AAA 2013 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2133072 or http://dx.doi.org/10.2139/ssrn.2133072

Steven J. Huddart

Pennsylvania State University, University Park - Department of Accounting ( email )

University Park, PA 16802-3603
United States
814-863-0448 (Phone)

HOME PAGE: http://directory.smeal.psu.edu/sjh11

Hong Qu (Contact Author)

Kennesaw State University - Michael J. Coles College of Business ( email )

1000 Chastain Road
Kennesaw, GA 30144
United States

HOME PAGE: http://https://works.bepress.com/hong-qu/

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