How Far Will Managers Go to Look Like a Good Steward? A Re-Examination of Honesty Preferences in Managerial Reporting

50 Pages Posted: 23 May 2019

See all articles by Heba Abdel-Rahim

Heba Abdel-Rahim

University of Toledo

Jeffrey Hales

University of Texas at Austin - Department of Accounting

Douglas E. Stevens

Georgia State University - Robinson College of Business

Date Written: April 4, 2019

Abstract

This study reports the results of two experiments that re-examine how preferences for honesty affect managers’ excessive consumption of firm resources. In our investor-manager investment game, if the investor chooses to invest, the manager privately observes production costs, chooses his or her personal pay, and provides a cost report in one of three reporting regimes: aggregated reporting, disaggregated without discretion, or disaggregated with discretion. In experiment one, we do not find evidence of an incremental effect for honesty preferences. Instead, we find that managers appear more concerned with looking like a good steward to investors than with actually being one (i.e., they classify some personal pay as production costs when the setting allows for reporting discretion over cost classification). In experiment two, we further investigate the incremental effect of honesty by allowing managers to choose either an aggregated report or a disaggregated report with reporting discretion. Our evidence again suggests that the weight of honesty preferences in the managers’ utility function is much lower than the weight for a preference to look like a good steward worthy of the investors’ capital investment. This evidence has implications for accounting researchers, standard setters, and regulators.

Keywords: transparency; reporting disaggregation; classification shifting; honesty preferences

Suggested Citation

Abdel-Rahim, Heba and Hales, Jeffrey and Stevens, Douglas E., How Far Will Managers Go to Look Like a Good Steward? A Re-Examination of Honesty Preferences in Managerial Reporting (April 4, 2019). Available at SSRN: https://ssrn.com/abstract=3378237 or http://dx.doi.org/10.2139/ssrn.3378237

Heba Abdel-Rahim (Contact Author)

University of Toledo ( email )

The Accounting Department
College of Business and Innovation
Toledo, OH 43606
United States

Jeffrey Hales

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States
512-471-2163 (Phone)
512-471-3907 (Fax)

Douglas E. Stevens

Georgia State University - Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States
404-413-7212 (Phone)
404-413-7203 (Fax)

HOME PAGE: http://robinson.gsu.edu/profile/douglas-e-stevens/

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