dc.contributor.authorCardinaels, Eddy
dc.contributor.authorYin, Huaxiang
dc.identifier.citationCardinaels, E., & Yin, H. (2015). Think Twice Before Going for Incentives: Social Norms and the Principal's Decision on Compensation Contracts. Journal of Accounting Research, 53(5), 985-1015.en_US
dc.description.abstractPrincipals make decisions on various issues, ranging from contract design to control system implementation. Few studies examine the principal's active role in these decisions. We experimentally investigate this role by studying how a principal's choice of an incentive contract that may discourage misrepresentation, compared to a fixed-salary contract, affects the honesty of his or her agents’ cost reporting. Results show that, besides an incentive effect and a principal trust effect, the active choice for incentives produces a negative “information leakage” effect. When principals use incentives, their choices not only incentivize truthful reporting and signal distrust, but they also leak important information about the social norm, namely, that other agents are likely to report dishonestly. Agents conform to this social norm by misrepresenting cost information more. Our results have important practical implications. Managers must recognize that their decisions can leak information to their agents, which may produce unanticipated consequences for the social norms of the organization.en_US
dc.format.extent43 p.en_US
dc.relation.ispartofseriesJournal of Accounting Researchen_US
dc.rights© 2015 Accounting Research Center. This is the author created version of a work that has been peer reviewed and accepted for publication in Journal of Accounting Research, published by University of Chicago on behalf of Accounting Research Center. It incorporates referee’s comments but changes resulting from the publishing process, such as copyediting, structural formatting, may not be reflected in this document.  The published version is available at: [http://dx.doi.org/10.1111/1475-679X.12093].en_US
dc.subjectIncentive contracten_US
dc.subjectInformation leakage effect
dc.subjectSocial norms
dc.titleThink Twice Before Going for Incentives: Social Norms and the Principal's Decision on Compensation Contractsen_US
dc.typeJournal Article
dc.contributor.schoolCollege of Business (Nanyang Business School)en_US
dc.description.versionAccepted versionen_US

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