The Effects of Control and Outcome Framing on Cost Reporting Manipulation

• In Event: 2.03 Management Behavior

Abstract

Our study investigates the manipulation of reported costs in the context of controllability and outcome framing. We consider a situation where managers are being evaluated upon the outcome of a project over which they may (or may not) have control. We consider whether the reporting of the project cost outcomes is affected either by the manager’s ability to control the outcome, or by the framing of the potential for wealth effects from the evaluation of the project, or both. We draw on a combination of prior research on controllability and prospect theory to inform our expectations. Findings from an experiment indicate that shifting costs between projects by managers in order to manipulate cost reporting of the project being evaluated by their superiors depends both on the amount of control (no control vs. control conditions) the manager exercised over the outcome of the project, as well as the framing of the wealth effects (loss vs. gain conditions) for the managers arising from the evaluation process of the project. Participants in the experiment displayed a tendency in conditions of both controllability and not having control, to manipulate reported cost results in order to avoid a potential loss to their remuneration, consistent with the predictions of prospect theory. However, they only manipulated in the potential gain context when they also had control over the project’s cost outcomes.

Authors

• Jeffrey R Cohen, Boston College

• Dennis Dominique Fehrenbacher, Monash University - Caulfield

• Lori Holder-Webb, Western New England University

• Axel Klaus-Dieter Schulz, La Trobe University