Organizational architecture and pro-social behavior: Three essays

Social motivations and double-sided information asymmetry are present in many accounting contexts. This thesis recognizes that managers can have social motivations and there can be double-sided information asymmetry between managers and employees, and will illustrate that accounting choices and decisions by principals, and accounting solutions by organizations, may look different and may have to be revised when considering social motivations and double-sided information asymmetry. Chapter 2 examines the effect of delegating decision rights about cost reduction in capital budgeting and the type of compensation contracts on the managers’ misrepresentation of private information. Results show that the delegation of decision rights produces an important responsibility effect that makes managers care about the superiors’ interest. The responsibility effect materializes when managers receive a fixed wage contract without truth telling incentives, but fails to materialize when managers receive a contract with the incentives. The findings suggest that firms may be better off by combining delegation with a fixed wage contract in settings where social motivations are important. Chapter 3 examines how a principal’s choice of a truth-telling incentive contract affects the honesty of their agents’ cost reporting in a setting where principals may have information about social norms unknown to agents. Results show that the principal’s choice of incentives produces besides an incentive effect a negative information leakage effect. This choice leaks information of a selfish social norm. Agents conform to this social norm by misrepresenting cost information more. The results suggest that managers must recognize that their decisions can leak information, which may produce unanticipated consequences for the social norms at play in the organization. Chapter 4 studies the effect of an open policy (revealing the manager behavior openly to employees) and granting managers discretion over rewarding employees on managers’ propensity to behave well towards the organization. Results show that managers are more likely to behave well towards the organization under the open policy compared to the closed policy (employees cannot observe the manager behavior). The effect of the open policy on controlling managers is larger when managers have discretion over rewarding employees than when they do not have the discretion