Shared interest and honesty in budget reporting
This study uses two experiments to investigate the honesty of managers’ budget reports
when the financial benefit resulting from budgetary slack is shared by the manager and
other non-reporting employees. Drawing on moral disengagement theory, we predict that
the shared interest in slack creation makes misreporting more self-justifiable to the manager
and, therefore, leads to lower honesty. Consistent with our prediction, the results of
our first experiment show that managers report less honestly when the benefit of slack
is shared than when it is not shared, regardless of whether others are aware of the misreporting.
Our second experiment investigates whether the preferences of the beneficiaries of
the slack affect managers’ honesty. We predict that managers’ honesty will be improved
when the beneficiaries of the slack have a known, higher-order preference for truthful
reporting. Consistent with our prediction, the results show that managers report more honestly
when other employees have a known preference for honesty than otherwise. The
implications of our findings for management accounting research and practice are
discussed.