The Effect of Personality Traits and Fairness on Honesty in Managerial Reporting

Purpose There has been a call for additional managerial accounting research that examines the effect of non-pecuniary preferences (such as those for honesty and fairness) on managerial reporting decisions. Methodology/approach Drawing from trait theory, agency theory, and psychological contracts theory, Kidder (2005) suggests that personality traits and perceived unfairness in the workplace both help predict detrimental workplace behaviors, with perceived fairness affecting the honesty in reporting of some individuals but not others. We test Kidder’s (2005) theory in an experimental setting where participants have opportunity and incentive to report dishonestly. Findings Participants’ honesty preferences and ethical values (idealism and relativism) were measured, and the fairness of the participants’ employment contracts was manipulated. As predicted, higher preferences for honesty are significantly associated with honesty in reporting, suggesting that participants make trade-offs between increasing their own wealth and acting honestly. Additionally, the perceived fairness of compensation interacted with honesty preferences and relativism to affect honesty in reporting. Practical and social implications The implication for practice is that while a small number of employees are likely to consistently behave in honest or self-interested ways, firms may be able to positively influence the behavior of the majority of employees by enacting policies and procedures that contribute to perceptions that compensation is fair. Originality/value of paper These findings contribute to our understanding of non-pecuniary preferences on managerial reporting decisions.