To Trust or Not: The Effects of Monitoring Intensity on Discretionary Effort, Honesty, and Problem Solving Ability

Managerial accounting researchers and practitioners are increasingly concerned with the effects of formal organizational controls on agent behavior. This three-paper dissertation extends this line of research by experimentally examining the effects of monitoring intensity on three important work behaviors which, generally, are not directly observable by the organizational control system: discretionary effort, problem solving ability, and honesty. Together, these studies help fill a gap in the managerial accounting literature by examining the relationship between the monitoring environment and agent behavior. The principal-agent theory of the firm suggests that tighter monitoring by the principal will increase the agent’s work effort at best, and have no effect at worst. However, the psychology literature suggests that monitoring may actually reduce effort by “crowding out” an individual’s intrinsic motivation to perform unmeasured or unrewarded work related tasks. In Paper 1, I test for the crowding out effect of monitoring and find mixed results. In Paper 2, I investigate the effects of monitoring intensity on various aspects of problem solving ability and creativity. Past research suggests that strict environmental controls can have detrimental effects on creative thinking. I extend this line of literature by investigating how monitoring affects an individual’s problem solving ability. In general, I find that monitoring intensity is negatively associated with problem solving ability. In Paper 3, I investigate how monitoring intensity affects an individual’s propensity toward dishonesty using a 3x2 experimental design where the participants are given a simple task, with a monetary reward based on performance, in one of the three monitoring treatments—trust, human monitoring, or electronic monitoring—and in one of two outcome reporting regimes—self-report or verified. I find an inverted-U shape relationship between monitoring intensity and dishonesty, where dishonesty is highest under human monitoring. Organizations are increasing their use of all types of surveillance and controls, and, in general, trust is increasingly discouraged within organizations. These papers add to the managerial accounting literature by shedding light on how different monitoring environments can change human behavior. This line of research can only increase in importance as regulation increases and monitoring technology becomes more advanced, reliable, and accessible