How Do Openness of Internal Reporting and Shared Interest with an Employee Affect Managerial Collusion and Subsequent Cooperation?

47 Pages Posted: 17 Aug 2018 Last revised: 22 Jan 2020

See all articles by Dan Way

Dan Way

Clemson University - School of Accountancy

Date Written: May 1, 2019

Abstract

Collusion between managers who share private information represents a significant control concern for firms. Prior research suggests that mutual monitoring contracts that incentivize honest reporting and whistleblowing do not prevent all collusion, making it important to understand how elements of the control environment facilitate or prohibit collusion, as well as how these control choices – and the act of collusion itself – affect subsequent behavior within the firm. In a two-stage experiment, I predict and find that the frequency of collusion between managers is greatest when one can view the other’s reports to the firm before making their own (“open internal reporting”) and any slack obtained from misreporting is shared with an employee (“shared interest”). Evidence suggests this stems from managers’ less positive perceptions of the firm and the reporting environment, which also result in decreased cooperation on a subsequent task. I further predict and find that successful collusion improves managers’ perceptions of trust, control in reporting decisions, and group identification, resulting in greater cooperation on a subsequent task and potentially reducing the costs of some collusion. The implications of my findings for management accounting research and practice are discussed.

Keywords: Collusion, honesty, managerial reporting, group identification, cooperation

Suggested Citation

Way, Dan, How Do Openness of Internal Reporting and Shared Interest with an Employee Affect Managerial Collusion and Subsequent Cooperation? (May 1, 2019). Available at SSRN: https://ssrn.com/abstract=3233079 or http://dx.doi.org/10.2139/ssrn.3233079

Dan Way (Contact Author)

Clemson University - School of Accountancy ( email )

101 Sikes Ave
Clemson, SC 29634
United States

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