Can You Pay for Honesty? An Experimental Investigation of Motivation Crowding in Managerial Reporting

This study examines the effects of profit-sharing on honesty in managerial reporting. While profit-sharing plans are widely used, there remains a need for understanding how profit-sharing plans affect honesty in managerial reporting. We investigate two commonly observed profit-sharing plans (individual and pooled) in a laboratory experiment where individuals with private cost information submit budget requests. Consistent with our prediction based on motivation crowding theory, our findings suggest that honesty is reduced in the presence of an individual profit-sharing plan. When the profit-sharing plan is expanded to a pooled profit-sharing plan, the adverse effects of the profit-sharing plans are partially mitigated. This study expands our understanding of motivation crowding theory in accounting literature using a non-effort based task. The findings of this study reveal a potential unintended consequence of using profit-sharing plans and have practical implications on the design of control systems for organizations, especially in settings focused on reporting