Exploiting Discretion? How Degrees of Discretion Affect Managerial Reporting Opportunism

This paper investigates how different degrees of discretion in information acquisition affect managerial reporting opportunism. Drawing on moral self-image theories, we predict and find that when managers have a low degree of discretion, where they can only choose to not collect relevant reporting information, they do not increase reporting opportunism, seemingly due to a normative expectation of acquiring and reporting information in good faith. However, we predict and find that when managers also have discretion over the analysis and interpretation of information, managers are about 30 percentage points more likely to report opportunistically. Consistent with our theory, managers with higher moral self-image concerns seem to drive this increase in reporting opportunism. Our results indicate that managers are not immune to the influence of discretion but require a higher degree of discretion to self-justify opportunistic reporting. We discuss the implications of our study for both research and practice