The Effect of Cognitive Moral Development on Honesty in Managerial Reporting

• In Event: Ethics in Decision Making

Abstract

Empirical evidence shows that some people will give up monetary rewards to tell the truth (e.g., Evans et al. 2001). Such findings violate the fundamental assumption of conventional agency theory of self-interest. The literature suggests that cognitive moral development influences how people make decisions when facing ethical dilemmas. This study examines whether honest reporting is associated with cognitive moral development. We carried out an experiment whereby participants made decisions that allowed them to increase their monetary payoff by lying more. Despite the fact that their decisions were not subject to monitoring, auditing, and reputation effects, some participants reported honestly or partially honestly. Participants at higher stages of cognitive moral development made more honest decisions compared with those at lower stages of cognitive moral development, even when honest decisions reduced their monetary rewards. Furthermore, these honesty preferences persisted even when participants made decisions that involved actual monetary rewards.

Authors

• Janne O Chung, York University

• Sylvia Hsu, York University