Sources of Employee Appreciation Messages and Bias in Accounting Estimates

• In Event: Accounting Behavior and Organizations 1

Abstract

Accounting estimates are common in both internal and external reporting and are especially susceptible to manipulation because they are subjective. We focus on the internal effects of the source of employee appreciation messages on subordinate accountants’ willingness to comply with their supervisor’s suggestion to lower an estimated expense to increase the supervisor’s bonus. For a period of (hypothetical) months before the supervisor requests the biased estimate, upper-level accounting students who assume the role of accounting managers receive a series of employee appreciation messages from either their supervisor or the company’s human resources (HR) team. The messages are identical in content and differ only in their source. Our analyses control for the perceived sincerity of the messages because prior findings suggest that the effect of such messages on employees’ feelings about their supervisor depends on the employees’ perceptions of the purpose of the messages. Consistent with our hypotheses, participants’ estimates are lower when the appreciative messages come from their supervisor rather than from the HR team, and this effect is mediated by the participants’ feelings about their supervisor. These results suggest that those who implement employee appreciation communications should consider the potential unintended cost of channeling such communications through immediate supervisors. In addition, our study illustrates the relevance of internal reporting issues for external financial reports in that the subordinates’ biased estimates not only increase the cash paid to the supervisor but also affect the company’s external reports in the same manner as conventional earnings management intended to influence external parties.

Authors

• Jordan Michael Bable, University of Pittsburgh

• Donald V Moser, University of Pittsburgh