Publications
Publications
- February 2023
- Accounting, Organizations and Society
The Effect of Systems of Management Controls on Honesty in Managerial Reporting
By: Aishwarrya Deore, Susanna Gallani and Ranjani Krishnan
Abstract
While budgetary controls with capital rationing are optimal in theory and widespread in practice, empirical research documents their association with higher employee dishonesty compared to budgetary controls without rationing. In this study, we examine whether combining budgetary controls with mission statements in a system of management controls decreases employee dishonesty. We predict that the system’s effect on dishonesty depends on the interaction of the social norms conveyed by each control instrument within the system. We study two types of budgetary controls that differ in whether they include budget rationing and two types of mission statements that differ in whether they emphasize integrity or financial values. We provide experimental evidence that mission statements reduce employee dishonesty more if combined with budget rationing controls than non-rationing budgetary controls. This effect is enhanced when the mission statement conveys a norm of integrity, as opposed to a norm of financial performance. Our results suggest that mission statements can mitigate downsides of budget rationing, but this effect is less pronounced when the norms conveyed by each instrument are redundant.
Keywords
Directing Controls; Misreporting; Mission Statements; Participative Budgeting; Stewardship Theory; Systems Of Management Controls; Capital; Budgets and Budgeting; Mission and Purpose
Citation
Deore, Aishwarrya, Susanna Gallani, and Ranjani Krishnan. "The Effect of Systems of Management Controls on Honesty in Managerial Reporting." Art. 101401. Accounting, Organizations and Society 105 (February 2023).