Theoretical Framework and Hypotheses Development
We first consider how the effect of a manager’s reported performance on themonetary payoff of his or her peers influences performance overstatements. We compare a setting in which one manager’s reported performance affects other managers’ monetary payoff positively with a setting in which one manager’s reported performance affects other managers’ monetary payoff negatively. Several social preferences models developed in the economics literature suggest that individuals are inequality averse and, therefore, derive negative utility from increasing the differences in payoffs between themselves and others (e.g., Fehr and Schmidt [1999], Charness and Rabin [2008]).