Information Acquisition and Opportunistic Behavior in Managerial Reporting

Abstract

Prior experimental studies have investigated factors affecting the honesty of managerial reporting in contexts where managers have no discretion in determining what information to acquire before making their reports. In many organizations, however, responsibility for acquiring information is delegated to local managers. Such delegated decision rights give managers discretion regarding what information to supply to the accounting system on which their reports are based. We predict that discretion may promote opportunistic reporting behavior because it allows managers to avoid relevant information and, in turn, report so as to maximize personal wealth without being knowingly untruthful. We investigate this prediction via two experiments. Results of Experiment 1 suggest that whether discretion in information acquisition affects reporting behavior is influenced by an individual’s preference for honesty (i.e., ethical type). We conduct Experiment 2 to investigate whether this is the case. Results show that, although discretion does not affect the reporting behavior of participants with low or high honesty preferences, participants with moderate honesty preferences tend to exploit discretion in order to avoid relevant information and report opportunistically. Our results suggest that the ability to exploit opportunities afforded by discretion in information acquisition is a potential cost when weighing the costs and benefits of assigning decision rights to managers. Our results also highlight the importance of considering a manager’s ethical type when assigning decision rights.

Keywords: opportunistic, information acquisition, managerial reporting, budgeting

JEL Classification: D82, D83, M41