Anticipating Human Behavior: How Social Norms and Social Ties Influence Compliance with Financial Reporting Standards

• In Event: Financial Reporting

Abstract

This study examines how the source and nature of reporting standards jointly influence compliance with those standards. More specifically, I examine how decision makers’ identification with the source of the standards moderates compliance with different types of standards. Type refers to whether the accounting standard is descriptive or injunctive. Source refers to the entity promulgating the accounting standards. I conducted an experiment in which participants faced a direct trade-off between reporting aggressively to maximize their personal wealth and reporting conservatively to comply with the standard. Consistent with expectations, I find that identification with the source causes higher compliance for an injunctive standard but that identification does not moderate the impact of a descriptive standard. Descriptive standards are influential regardless of identification with the source. Thus, when identification with the source is low, descriptive guidance leads to greater compliance than does injunctive guidance. These results further our understanding of the role social forces play in the standard setting environment, allowing regulators to better identify standards that will have a high probability of achieving conformity.

Author

• Donald R Young, Georgia Institute of Technology