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.