An Experimental Investigation of the Effects of Mutual Shared Interest on Honesty in Managerial Accounting

• In Event: Honesty in Budgeting

Abstract

This study examines the effects of mutual shared interest among agents on honesty in managerial reporting using a participative budgeting setting. In a laboratory experiment manipulating profit-sharing conditions (none, individual, or pooled), participants with private information related to manufacturing cost submitted budget requests. Honesty was determined based upon the budgetary slack requested as a percent of total budgetary slack available. Consistent with our prediction based on motivation crowding theory, our findings suggest honesty is reduced in the presence of a profit-sharing plan based solely on division-specific profit. Contrary to our prediction that mutual shared interest would increase honesty, we find participants in the mutual shared interest condition report less honestly than participants in the no profit-sharing condition. The findings imply the effect of shared interest is context specific. The findings of this study expand our knowledge of how shared interest and mutual dependence affect managerial accounting decision making in a multi-agent, participative budgeting setting.

Authors

• Michael John Majerczyk, University of South Carolina

• Charles R Boster, University of South Carolina