What is it about?
In this paper, I investigate whether the honesty of managers’ budget reporting depends on the state of their mood. The results from a laboratory experiment demonstrate that managers in a positive mood report their budgets more honestly than managers in a negative mood. Attaining a neutral mood state, however, does not increase honesty sufficiently to balance out the effects of a negative mood state. The hedonic contingency theory suggests that the cognitive process underlying a display of higher honesty when the manager is in a positive mood stems from the manager’s desire to maintain this mood by reporting the budget more truthfully. The results of supplemental analyses show that the effect of the manager’s mood on honesty remains stable over multiple reporting periods. By examining the expected firm profits, I reveal that a contract based on the assumption that a manager will be honest is more beneficial than a truth-inducing contract derived from economic theory. If the manager is in a more positive mood, this relative advantage increases due to the effect of mood on honesty.
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Why is it important?
Creating a supportive organizational culture can contribute to a more positive mood among managers, fostering a collaborative and effective budgeting environment.
Perspectives
From my perspective, this study highlights a fascinating and often overlooked factor in ethical decision-making: the influence of mood on honesty. I found it particularly interesting that managers in a positive mood report budgets more honestly, and that this effect persists over multiple reporting periods. This challenges the common assumption that honesty is purely a matter of rules or incentives and underscores the role of emotional states in shaping behavior. I also appreciated the insight from hedonic contingency theory, suggesting that people act more truthfully to maintain a positive mood. It made me reflect on how small changes in organizational climate or managerial interactions could influence ethical behavior and reporting accuracy. Overall, this research reinforced for me that managers’ emotional well-being is not just a personal concern—it has practical implications for organizational performance and the effectiveness of contracts.
Martin Altenburger
Webster Vienna Private University
Read the Original
This page is a summary of: Mood and honesty in budget reporting, Management Accounting Research, October 2020, Elsevier,
DOI: 10.1016/j.mar.2020.100707.
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