The Effect of Formal Control Justification on Dysfunctional Behavior

Abstract

Prior studies in management control find that formal controls can engender employees’ negative responses toward the organization because they not only restrict employees’ autonomy, but they also signal distrust. The present study examines whether control justification (deterrence justification versus just deserts justification) can mitigate employees’ feelings of distrust and the adverse consequences of control. Using an experiment, we find that employees are more likely to feel distrusted when an organization imposes a formal control with a deterrence justification than with a just deserts justification. We further find that employees who feel more distrusted decrease the amount of misreporting more when they have high loss aversion than when they have low loss aversion. This difference is not significant among employees who feel less distrusted. Results of our study contribute to the literature on the effect of formal controls, and have implications for organizations as they consider ways to mitigate employees’ negative reactions to formal controls.