Information system precision and honesty in managerial reporting: A re-examination of information asymmetry effects

Heba Y. Abdel-Rahim and Douglas E. Stevens

Accounting, Organizations and Society, 2018, vol. 64, issue C, 31-43

Abstract: Hannan, Rankin, and Towry (2006, HRT hereafter) propose that an information system is capable of affecting honesty in the manager's budget report by reducing information asymmetry between the manager and the owner regarding the level of honesty in the budget. They find that going from no information system to a coarse information system increases honesty in managerial reporting. However, they also report evidence that going from a coarse information system to a precise information system decreases honesty in managerial reporting. We extend HRT's study in two ways. First, we extend their behavioral theory by incorporating the possibility that reducing information asymmetry could increase the manager's preference for honesty in the budget (Koford & Penno, 1992; Bicchieri, 2006). Second, we note that HRT held information system accuracy constant at a relatively low level, which is another source of information asymmetry. Thus, we test the robustness of HRT's negative precision result by manipulating information system precision and accuracy at two levels using a computerized version of their manual experiment. We find that information system precision increases honesty in managerial reporting and that this positive precision effect is weaker under low information system accuracy. A supplemental analysis suggests that our data are generally similar to HRT's data in our two low accuracy conditions and that their negative precision result is attributable to an unusual period effect in their coarse information system condition.

Keywords: Information system precision; Information asymmetry; Honesty; Social norms; Participative budgeting; Agency theory (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0361368217301307
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:aosoci:v:64:y:2018:i:c:p:31-43

DOI: 10.1016/j.aos.2017.12.004

Access Statistics for this article

Accounting, Organizations and Society is currently edited by Christopher Chapman

More articles in Accounting, Organizations and Society from Elsevier
Bibliographic data for series maintained by Catherine Liu ().