Doing the Right Thing : The Effect of Rotation Policies on Managers' Reports about Operational Distortion

Operating distortion causes inefficiencies in performance measurement systems and typically remains hidden in firms' operational layers, unless managers report its occurrence. One obstacle to managers reporting operating distortion is that they often benefit economically from remaining silent about it, which causes them to morally disengage from the reporting decision. In this study, we examine whether the prospect of rotating to another business unit decreases moral disengagement among managers and induces them to report more of the operating distortion in their current business unit. Results from our experiment support our prediction and confirm that the prospect of rotation decreases the likelihood that managers will morally disengage from the reporting decision. Our study contributes to research on operating distortion and managerial reporting and has important implications for firms looking to resolve inefficiencies in performance measurement systems in business units