Agency Costs of Moral Accounting in Hierarchical Relationships

40 Pages Posted: 9 Aug 2018 Last revised: 28 Aug 2019

Date Written: August 27, 2019

Abstract

Efforts to increase firm profits can include actions that can be considered morally questionable or immoral. Profiting from them can motivate agents to balance their moral accounts via subsequent compensatory actions that are moral in nature. In an experiment, I demonstrate that this “moral cleansing” can impose agency costs. Specifically, results suggest that agents use firm resources to balance principals’ immoral actions because they are affected by association. In contrast, I find that agents do not use firm resources to balance their own immoral actions. This result is consistent with individuals finding it more difficult to justify the use of firm resources when they are responsible for the immoral action and easier to disengage morally and reframe these actions as “doing their job,” thereby decreasing their need to balance moral accounts. Thus, this study identifies potential agency costs owing to agents’ moral cleansing and discusses the implications of these findings.

Keywords: Agency Costs; Moral Cleansing; Moral Disengagement; Corporate Giving; Sustainability/Corporate Social Responsibility (CSR)

JEL Classification: G30; M12; M14; M41; M48

Suggested Citation

Hörner, Christoph, Agency Costs of Moral Accounting in Hierarchical Relationships (August 27, 2019). Available at SSRN: https://ssrn.com/abstract=3228425 or http://dx.doi.org/10.2139/ssrn.3228425

Christoph Hörner (Contact Author)

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

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