Audits, Reputation, and Repeated Interaction in a Capital Budgeting Setting

Arnold, Markus C.; Schreiber, Dominik (2013). Audits, Reputation, and Repeated Interaction in a Capital Budgeting Setting. European Accounting Review, 22(1), pp. 185-214. Routledge 10.1080/09638180.2011.631734

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This experimental study investigates the use of audits as a control instrument in capital budgeting processes and factors that contribute to audit efficiency (or inefficiency) in a repeated relationship. We disentangle reputational aspects of superiors and subordinates from an increased social content in repeated relationships. In settings where subjects face new counterparts every round, we find that reputational aspects strongly affect the superiors' and subordinates' behavior. This leads to a decrease in slack and an increase in the superior payoff. However, in a repeated relationship with an increased level of social content, these benefits are no longer present. In fact, the subordinates' ability to retaliate against their superior for prior punishments in the repeated setting by reporting more slack in later rounds has negative effects on the use of audits and decreases audit efficiency. These findings imply that, in repeated relationships, social factors play an important role and might impair the disciplining effects of audits.

Item Type:

Journal Article (Original Article)

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Business Management > Institute for Accounting and Controlling > Managerial Accounting

UniBE Contributor:

Arnold, Markus Christopher

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

ISSN:

0963-8180

Publisher:

Routledge

Language:

English

Submitter:

Lynn Carole Selhofer

Date Deposited:

11 Mar 2020 15:06

Last Modified:

11 Mar 2020 15:06

Publisher DOI:

10.1080/09638180.2011.631734

BORIS DOI:

10.7892/boris.141303

URI:

https://boris.unibe.ch/id/eprint/141303

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