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The effect of rankings on honesty in budget reporting

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  • Brown, Jason L.
  • Fisher, Joseph G.
  • Sooy, Matthew
  • Sprinkle, Geoffrey B.

Abstract

We conduct an experiment to investigate the effect of rankings, which are pervasive in practice, on the honesty of managers’ budget reports, which is important for sound decision making in organizations. Participants in our experiment are ranked in one of four ways: (1) firm profit, (2) own compensation, (3) both firm profit and own compensation, and (4) randomly, which serves as our baseline condition. None of the rankings affect participants’ remuneration. Compared to our baseline (random rankings) setting, where participants indeed exhibit honesty concerns, we find that rankings based on firm profit significantly increase honesty and that rankings based on own compensation significantly decrease honesty. Participants who received both rankings were significantly more honest than participants in the own compensation rankings condition. We did not, however, find significant differences in honesty between the both rankings and firm profit rankings conditions. As such, participants in the both rankings condition seemed to focus more on the firm profit metric than on the financially congruent own compensation metric. We also find that our results are stable across periods, suggesting that the effects of rankings neither increased nor dissipated over time. We discuss the contributions of our study and concomitant findings to accounting research and practice.

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  • Brown, Jason L. & Fisher, Joseph G. & Sooy, Matthew & Sprinkle, Geoffrey B., 2014. "The effect of rankings on honesty in budget reporting," Accounting, Organizations and Society, Elsevier, vol. 39(4), pages 237-246.
    • Handle: RePEc:eee:aosoci:v:39:y:2014:i:4:p:237-246
    DOI: 10.1016/j.aos.2014.03.001
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    2. Martin, Patrick R., 2021. "Corporate social responsibility and capital budgeting," Accounting, Organizations and Society, Elsevier, vol. 92(C).
    3. Dato, Simon & Feess, Eberhard & Nieken, Petra, 2024. "Lying in competitive environments: Identifying behavioral impacts," European Economic Review, Elsevier, vol. 170(C).
    4. Gerald Eisenkopf & Ruslan Gurtoviy & Verena Utikal, 2017. "Punishment Motives for Small and Big Lies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(2), pages 484-498, June.
    5. Brink, Alisa G. & Coats, Jennifer C. & Rankin, Frederick W., 2018. "Who’s the boss? The economic and behavioral implications of various characterizations of the superior in participative budgeting research," Journal of Accounting Literature, Elsevier, vol. 41(C), pages 89-105.
    6. Markus Brunner & Andreas Ostermaier, 2019. "Peer Influence on Managerial Honesty: The Role of Transparency and Expectations," Journal of Business Ethics, Springer, vol. 154(1), pages 127-145, January.
    7. Ruan, Qinnan, 2022. "Management control systems and ethical decision making," Other publications TiSEM 3b6dc74f-fd2a-48ef-b1a9-c, Tilburg University, School of Economics and Management.
    8. Lisa-Marie Wibbeke & Maik Lachmann, 2020. "Psychology in management accounting and control research: an overview of the recent literature," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 31(3), pages 275-328, September.
    9. Brown, Jason L. & Farrington, Sukari & Sprinkle, Geoffrey B., 2016. "Biased self-assessments, feedback, and employees' compensation plan choices," Accounting, Organizations and Society, Elsevier, vol. 54(C), pages 45-59.
    10. Christian Daumoser & Bernhard Hirsch & Matthias Sohn, 2018. "Honesty in budgeting: a review of morality and control aspects in the budgetary slack literature," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 29(2), pages 115-159, August.
    11. Luft, Joan, 2016. "Management accounting in the laboratory and in social context: Four contrasts, 1975–2014," Accounting, Organizations and Society, Elsevier, vol. 49(C), pages 9-20.
    12. Ding, Jingjing & Dong, Wei & Liang, Liang & Zhu, Joe, 2017. "Goal congruence analysis in multi-Division Organizations with shared resources based on data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 263(3), pages 961-973.
    13. Tabea Franziska Hirth-Goebel & Barbara E. Weißenberger, 2019. "Management accountants and ethical dilemmas: How to promote ethical intention?," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 30(3), pages 287-322, October.

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