Reporting Distortion is Like Lying, But Operating Distortion is Like Stealing

Abstract

Prior research documents that elite US managers see reporting distortions (RD) as less acceptable than operating distortions (OD) for hitting performance targets. We show that such “RD aversion” declines with socioeconomic status and perceptions of the distorter’s deservingness, and rises with social conservatism. RD is seen as more deceptive and unauthorized than OD, especially among those who see the distorter as less deserving, while OD is seen as more harmful than RD regardless of deservingness. When OD causes serious harm, respondents exhibit OD aversion, and more so when they place more value on benevolence and fairness, and less so when they place more value on loyalty, obedience and purity. All of these patterns are consistent with a simple semantic model in which people see RD as akin to lying (a false statement intended to deceive), but see OD as akin to stealing (a wrongful enrichment that harms another).

Keywords: Earnings Management, Ethics, Survey Research, Operating Distortion, Reporting Distortion

JEL Classification: M41