What do you recommend? The Effects of Communication and Dark Personality on Misreporting by Autonomous Teams
Co-authored with Anna Ressi and Daniel Schaupp
Although prior literature has accumulated much knowledge on managers’ reporting decisions in hierarchical settings, we know relatively little about how managers in autonomous teams make these decisions. We designed a quasi-experiment featuring an autonomous team and analyzed how its managers make cost reporting decisions on their team’s behalf. Our results show that misreporting becomes more pronounced the darker the manager’s personality and that communication with other team members fulfills a crucial role. Specifically, communication with other team members fails to discipline dishonest managers with a darker personality, while it can infect honest managers with a less dark personality. Our results grant detailed insight into the black box that is autonomous teams and showcases how their decisions can depend on communication and team composition.
In Search of Informed Discretion (Revisited): Are Managers Concerned about Appearing Selfish?
Co-authored with Bart Dierynck and Jesse van der Geest
To improve the quality of performance evaluation and compensation decisions, managers can undertake costly searches for additional information. Prior accounting research suggests managers are willing to undertake these costly information searches because they have social preferences (i.e., distributional fairness and reciprocity). However, our experimental results show that managers are significantly less willing to undertake costly information searches when the situation makes that choice appear more acceptable. Our findings are consistent with predictions rooted in behavioral economics and social psychology that even self-interested people exhibit prosocial behavior because the situation they find themselves in triggers concerns about appearing selfish to themselves and others. We discuss how creating working conditions that increase managers’ concerns about their self-image may prompt them to make informed performance evaluation and compensation decisions.
Public Tax Disclosures and Investor Perceptions
Co-authored with Bart Dierynck, Martin Jacob, Maximilian Müller, and Christian Peters
To reveal to the public whether firms pay their fair share of taxes, regulators increasingly mandate public tax disclosures. One assumption is that these disclosures help stakeholders, such as retail investors, identify aggressive tax avoiders. However, we find that retail investors become worse at identifying firms using aggressive avoidance methods when they receive designated tax disclosures alongside standard effective tax rate reconciliations. This experimental finding is consistent with our prediction rooted in attribute substitution theory that retail investors fixate on designated tax disclosures when forming perceptions about whether firms pay their fair share and their willingness to invest.
Are All Readers on the Same Page? Predicting Variation in Information Retrieval from Financial Narratives
Co-authored with Ties de Kok and Christoph Sextroh
Retrieving information from financial narratives is a complex process that depends on how the text characteristics of narratives interact with the financial literacy of users. In this study, we develop a comprehensive measure for variation in information retrieval based on observed user behavior that is also able to incorporate understudied text characteristics such as the semantics and content of a narrative. Using a tool that tracks reading and marking behavior in a controlled environment, we first document how users with varying degrees of financial literacy retrieve information from financial narratives. We find significant variation among financial literacy groups that cannot be solely explained by text characteristics related to processing costs. Next, we use state-of-the-art machine-learning to predict variation in information retrieval for out-of-sample financial narratives, and we show that these predictions are incrementally associated with the post-announcement return volatility. Overall, our results suggest that efforts by regulators and corporations to simplify text characteristics of corporate communications might not resolve all differences in how users retrieve information from financial narratives.
Asymmetric Adjustment of Control
Job market paper
In this study, I examine how principals adjust their control over agents. Building on psychological theory, I predict that prior experience with controlling agents reinforces a principal’s belief that agents are self-interested and that they should control agents. In contrast, prior experience with not controlling agents does not reinforce a principal’s belief that agents are socially interested and that they should not control agents. Accordingly, principals should be less willing to decrease their control over agents than increase their control over agents. Results of my experiment support my prediction by exhibiting an asymmetric adjustment pattern, and it also showcases conditions under which it disappears. Overall, my study suggests that extensive experience with exercising high control over agents may cause principals to hold on to their control disproportionally.
Doing the Right Thing: The Effect of Rotation Policies on Managers’ Reports about Measure Management
Co-authored with Eddy Cardinaels and Bart Dierynck
Measure management, which involves managing performance measures by distorting reporting and operational decisions, is a common problem for firms. We examine whether rotation policies facilitate the extraction of information about the occurrence and severity of measure management from business unit managers. Consistent with economic predictions, we find that rotation policies enable firms to compensate business unit managers less for reported information about measure management in their business units. Next to this compensation effect, we also find that the prospect of being rotated causes business unit managers to report more information about measure management in their business unit. The reporting effect is consistent with our prediction rooted in behavioral economics that the prospect of rotation causes business unit managers to base their reporting decisions more on the welfare implications for the firm and less on the implications for their own welfare. Our findings suggest that rotation policies have significant information extraction benefits for firms, especially for unit-specific information that is challenging and costly to extract.
The Sorting Benefits of Discretionary Adjustment to Performance-based Pay
Co-authored with Bart Dierynck
We use an experiment to test the hypothesis that adding discretionary adjustment to performance-based pay strengthens the sorting of employees based on how strongly they identify with the organization’s objectives. Our conceptualization of identification is grounded in identity economics, which predicts that employees who identify strongly with the organization’s objectives exert greater effort toward those objectives than employees who identify weakly with those objectives. Building on this conceptualization, we expect that employees anticipate that managers will adjust performance-based pay more (less) favorably when employees reveal strong (weak) identification with the organization’s objectives. Thus, when managers can adjust performance-based pay, performance-based pay contains a feature that benefits (disadvantages) employees with strong (weak) identification, which we expect to strengthen the sorting of employees based on their identification. Consistent with our hypothesis, we find that the difference in preferences for performance-based pay between employees with strong and weak identification is larger when discretionary adjustment accompanies performance-based pay than when it does not. Our results also confirm that employee identification increases employee costly effort exertion toward the organization’s objectives. We contribute to the management accounting literature on discretion in performance evaluation by documenting a previously undocumented benefit of discretionary adjustment.