The Effects of Perceived Fairness on Opportunistic Behavior

28 Pages Posted: 8 Aug 2006 Last revised: 2 Sep 2010

See all articles by Jeffrey R. Cohen

Jeffrey R. Cohen

Boston College - Department of Accounting

Lori Holder-Webb

Western New England University - Department of Accounting and Finance

David J. Sharp

University of Western Ontario - Managerial Accounting and Control Area Group

Laurie W. Pant

Suffolk University

Date Written: August 3, 2006

Abstract

The classic agency model provides the basis for a large number of organizational contracts in the contemporary business environment. However, contracting provisions based on this model may induce undesirable behavior and shifts in employee value systems. Therefore, we expand upon the agency model by exploring fairness as a motivator of positive behavior in the contracting environment. Managers were asked to make a cost allocation decision in which we manipulated information asymmetry (absent or pre-sent) and incentives (absent, low, or high). Results indicate that subjects' perception of the fairness of the action dominates the agency effect in determining the intent to act opportunistically. Further analysis suggests that, among subjects who perceive that the action is unfair, the inclination to behave opportunistically is insensitive to the size of the incentive to do so. We conclude that researchers and managers should consider fairness as an important element of the opportunity-incentive-action dynamic when the need for contracting around potential agency problems arises.

Keywords: agency models, accounting ethics, fairness, moral development, earnings management

JEL Classification: A13, D80, H32, M41, M46

Suggested Citation

Cohen, Jeffrey R. and Holder-Webb, Lori and Sharp, David J. and Pant, Laurie W., The Effects of Perceived Fairness on Opportunistic Behavior (August 3, 2006). Contemporary Accounting Research, 2007. Available at SSRN: https://ssrn.com/abstract=922188 or http://dx.doi.org/10.2139/ssrn.922188

Jeffrey R. Cohen

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-3165 (Phone)
617-552-2097 (Fax)

Lori Holder-Webb (Contact Author)

Western New England University - Department of Accounting and Finance ( email )

United States

David J. Sharp

University of Western Ontario - Managerial Accounting and Control Area Group ( email )

London, Ontario
Canada
519-661-3945 (Phone)
519-661-3485 (Fax)

Laurie W. Pant

Suffolk University ( email )

Frank Sawyer School of Managaement Department of Accounting
Boston, MA 02108
United States
617-573-8394 (Phone)
617-573-8345 (Fax)

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