Disclosing Conflict of Interest - Do Experience and Reputation Matter?

Abstract

In a controlled laboratory experiment, we investigate the effects of disclosing conflicts of interest on the reporting of information providers. First, we replicate the findings of Cain, Loewenstein, and Moore (2005) that such disclosure makes misreporting more likely as it removes moral concerns. Second, we observe that these effects diminish given experience and find, to the opposite, that disclosure reduces bias in auditors' reporting as predicted by economic theory. Third, we identify disclosure of conflicts of interest as a potential impediment to reputation formation.

Keywords: Auditor Independence, Audit Fees, Nonaudit Fees, Reputation, Experience, Experimental Economics

JEL Classification: C91, D82, D83, G28, M42