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The Effects of Aggregation on Managerial Reporting Behavior in a Capital Budgeting Setting
Anthony D. Nikias,
Texas A & M University Kingsville
Jim R. Wollscheid, Texas A & M University Kingsville
ABSTRACT. This paper conducts an experiment to determine whether managers’ reporting behavior in a capital budgeting setting is dependent on whether the aggregate cost of projects over two periods, or the cost of each project in each period are reported. The rational, wealth-maximizing model predicts no difference in the managers' reports, because the manager learns the true cost of projects while the owner does not. In the study, the managers report the cost of the project in a face-to-face setting. The results provide evidence the manager’s increased ability to conceal dishonest reporting when aggregate costs are reported (BATCH) leads to a greater amount of fairness and honesty than when the cost of each project are reported individually (SEQ). In addition, the percentage of fairness and honesty is lower in the first period compared to the second period consistent with managers making reparations over guilt in the sequential treatment.
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