Inequity aversion, incentives, and personal norms: The effects on budget preparation and use

Joseph G. Fisher; W. Timothy Mitchell; Sean A. Peffer; R. Alan Webb

doi:10.2308/jmar-52033

Inequity aversion, incentives, and personal norms: The effects on budget preparation and use

Joseph G. Fisher, W. Timothy Mitchell, Sean A. Peffer, R. Alan Webb

Accountancy

Research output: Contribution to journal › Article › peer-review

2 Scopus citations

Abstract

We examine two features of control environments expected to affect the honesty of budget submissions by subordinates and their use by managers for planning purposes. First, we predict that subordinates’ awareness of incentives available to their managers that they are not eligible to share in, is likely to induce inequity aversion and dishonest budgeting. However, we expect the egocentric bias will make managers insensitive to this increased dishonesty when using budgets for planning purposes. Second, we predict that making subordinates eligible to participate in incentives available to their managers will activate a personal norm of other-regarding behavior resulting in more honest budgeting. Third, we predict that managers whose subordinates are eligible to share in their incentives will recognize factors motivating their subordinates’ behavior and, as a result, rely more on their budget submissions for planning purposes. Experimental results confirm all predictions. Implications for practice and research are discussed.

Original language	English
Pages (from-to)	105-128
Number of pages	24
Journal	Journal of Management Accounting Research
Volume	31
Issue number	1
DOIs	https://doi.org/10.2308/jmar-52033
State	Published - Mar 1 2019

Bibliographical note

Funding Information:
We thank Margaret H. Christ (editor), two anonymous reviewers, Jake Birnberg, Willie Choi, Harry Evans III, Lynn Hannan, Vicky Hoffman, Khim Kelly, Don Moser, Nandu Nagarajan, Andrew Newman, Adam Presslee, Axel Schultz, Ivo Tafkov, James Wainberg, and workshop participants at Monash University, Ohio University, University of Pittsburgh, University of Waterloo, Wilfrid Laurier University, and attendees of the 2013 Management Accounting Section Research and Case Conference and the 2014 Canadian Academic Accounting Association Annual Meeting for comments on earlier versions.

Publisher Copyright:
© 2019, American Accounting Association. All rights reserved.

Keywords

Budgets
Incentives
Personal norms

ASJC Scopus subject areas

Business and International Management
Accounting

Access to Document

10.2308/jmar-52033

Cite this

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title = "Inequity aversion, incentives, and personal norms: The effects on budget preparation and use",

abstract = "We examine two features of control environments expected to affect the honesty of budget submissions by subordinates and their use by managers for planning purposes. First, we predict that subordinates{\textquoteright} awareness of incentives available to their managers that they are not eligible to share in, is likely to induce inequity aversion and dishonest budgeting. However, we expect the egocentric bias will make managers insensitive to this increased dishonesty when using budgets for planning purposes. Second, we predict that making subordinates eligible to participate in incentives available to their managers will activate a personal norm of other-regarding behavior resulting in more honest budgeting. Third, we predict that managers whose subordinates are eligible to share in their incentives will recognize factors motivating their subordinates{\textquoteright} behavior and, as a result, rely more on their budget submissions for planning purposes. Experimental results confirm all predictions. Implications for practice and research are discussed.",

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Inequity aversion, incentives, and personal norms: The effects on budget preparation and use

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

Access to Document

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