Peer Influence on Managerial Honesty: The Role of Transparency and Expectations

TY - JOUR

T1 - Peer Influence on Managerial Honesty: The Role of Transparency and Expectations

AU - Brunner, Markus

AU - Ostermaier, Andreas

PY - 2019

Y1 - 2019

N2 - We investigate peer influence on managerial honesty under varying levels of transparency. In a laboratory experiment, managers report their costs to a superior to request budget. We manipulate whether the managers learn each other’s report and cost (full transparency) or the report but not the cost (partial transparency). The results show, first, that managers are susceptible to peer influence, as they join peers in reporting honestly and dishonestly both under full and partial transparency. Second, however, the effect of peer influence is asymmetric. While managers’ dishonesty increases much when peers’ reports are higher than they have expected, the opposite is not true. Third, partial transparency reinforces this asymmetry in peer influence. Unlike full transparency, it allows managers to substitute self-serving assumptions for missing information and to thus justify their own dishonesty more easily. The contribution of this study is twofold: It provides evidence for the interaction between transparency and peer influence and it highlights the role of (disappointed) expectations in fueling dishonesty. Our findings warn firms that especially partial transparency may spread dishonesty more than honesty. Transparency may also hurt firms that push honesty norms (as in ethics codes) but fail to enforce compliance, thus raising and disappointing managers’ expectations.

AB - We investigate peer influence on managerial honesty under varying levels of transparency. In a laboratory experiment, managers report their costs to a superior to request budget. We manipulate whether the managers learn each other’s report and cost (full transparency) or the report but not the cost (partial transparency). The results show, first, that managers are susceptible to peer influence, as they join peers in reporting honestly and dishonestly both under full and partial transparency. Second, however, the effect of peer influence is asymmetric. While managers’ dishonesty increases much when peers’ reports are higher than they have expected, the opposite is not true. Third, partial transparency reinforces this asymmetry in peer influence. Unlike full transparency, it allows managers to substitute self-serving assumptions for missing information and to thus justify their own dishonesty more easily. The contribution of this study is twofold: It provides evidence for the interaction between transparency and peer influence and it highlights the role of (disappointed) expectations in fueling dishonesty. Our findings warn firms that especially partial transparency may spread dishonesty more than honesty. Transparency may also hurt firms that push honesty norms (as in ethics codes) but fail to enforce compliance, thus raising and disappointing managers’ expectations.

KW - Honesty

KW - Motivated reasoning

KW - Peer influence

KW - Reporting

KW - Social norms

KW - Transparency

UR - http://www.scopus.com/inward/record.url?scp=85013058520&partnerID=8YFLogxK

U2 - 10.1007/s10551-017-3459-9

DO - 10.1007/s10551-017-3459-9

M3 - Journal article

SN - 0167-4544

VL - 154

SP - 127

EP - 145

JO - Journal of Business Ethics

JF - Journal of Business Ethics

IS - 1

ER -