The effect of rankings on honesty in budget reporting

June 6, 2014 Leave a comment

Accounting, Organizations and Society 39 (2014) 237–246

The effect of rankings on honesty in budget reporting q

Jason L. Browna,⇑, Joseph G. Fisher a, Matthew Sooy b, Geoffrey B. Sprinklea

abstract

We conduct an experiment to investigate the effect of rankings, which are pervasive in

practice, on the honesty of managers’ budget reports, which is important for sound

decision making in organizations. Participants in our experiment are ranked in one of four

ways: (1) firm profit, (2) own compensation, (3) both firm profit and own compensation,

and (4) randomly, which serves as our baseline condition. None of the rankings affect

participants’ remuneration. Compared to our baseline (random rankings) setting, where

participants indeed exhibit honesty concerns, we find that rankings based on firm profit

significantly increase honesty and that rankings based on own compensation significantly

decrease honesty. Participants who received both rankings were significantly more honest

than participants in the own compensation rankings condition. We did not, however, find

significant differences in honesty between the both rankings and firm profit rankings

conditions. As such, participants in the both rankings condition seemed to focus more on

the firm profit metric than on the financially congruent own compensation metric. We also

find that our results are stable across periods, suggesting that the effects of rankings

neither increased nor dissipated over time. We discuss the contributions of our study

and concomitant findings to accounting research and practice.

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Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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