The Crowding-Out Effect of Non-Financial Controls on Honest Reporting: An Experimental Examination Using the Superior’s Choice of an Information System

Abstract

This study examines the moderating effect of social norm sensitivity on organizational control using a participative budgeting setting found in the literature. Experimental researchers have documented that subordinates report more honestly in their budget in the presence of an information system that reduces information asymmetry regarding the level of honesty in the budget. Consistent with prior results, we observe an increase in reporting honesty when the information system is randomly assigned. When the information system is chosen by the superior, however, this increase in reporting honesty is significantly reduced. We find that this reduction is attributable to the behavior of subordinates who score high in social norm sensitivity as measured by the Responsibility scale of the JPI-R. Exit questionnaire responses reveal that while both high and low norm sensitivity subordinates viewed the superior’s choice of an information system as a signal of distrust, only high norm sensitivity subordinates felt less obligated to report honestly as a result. A path analysis provides further evidence that the superior’s choice reduced reporting honesty by reducing perceived trust in high norm sensitivity subordinates. This study documents a negative effect of signaling distrust to agents who view themselves as trustworthy, which has broad implications for organizational control.