Rotten Apples and Sterling Examples: Moral Reasoning and Peer Influences on Honesty in Managerial Reporting

Abstract:
We propose that idiosyncratic benefits from adhering to social norms explain the heterogeneity in honesty documented in many situations where misrepresentation yields a financial benefit. Further, information about the honesty of one's peers modifies the descriptive norm and hence, one's own honesty. We test these hypotheses in a reporting experiment with two managers in which one manager observes the reports of a peer. Managers’ honesty decreases when peers are less honest and increases when peers are more honest. The importance of the maintaining norms schema — assessed by the DIT-2 — explains these adjustments and, moreover, explains variation in reporting honesty in vacuo.

Source: Social Science Research Network

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