The Effect of Management Controls on Employees' Decision Making

Yun Shil Cha

Prior management accounting research has documented the unintended consequences of control systems. Despite the negative effects, organizations need controls to operate effectively and often use them to monitor and motivate employees to achieve organizational goals. Thus, it is important to study factors that mitigate employees’ negative responses to management controls and understand the underlying constructs of their decision making. Summaries of Study 1 and Study 2 are discussed as follows. When organizations implement a control, employees infer management’s intent. Study 1 examines the effect of management’s control justifications (deterrence or just deserts justifications) on employees’ behaviors. I find that employees are more likely to feel distrust when their company implements a control with a deterrence justification than a just deserts justification. Employees who feel distrust are less likely to engage in organizational citizenship behavior. I also find that employees who feel distrusted due to a deterrence justification are less likely to misreport performance when they perceive a potential monetary loss to a greater extent, but not when they perceive a potential monetary loss to a lesser extent. Results suggest that organizations can either attempt to minimize employees’ negative reactions toward control systems using proper control justifications or increase the costs of misreporting by using a monetary penalty to curb employees’ opportunistic behaviors. Linking self-determination theory and moral licensing theory, study 2 examines the effect of ranking as an informal control on employees’ behaviors. Specifically, study 2 investigates the underlying motivation of employees’ decision making in the presence or absence of ranking, and further examines whether the consequence of forced behaviors by ranking spills over to the subsequent task. I find that employees who internalize their contribution to a lesser extent are more likely to be motivated by controlled extrinsic motivation when ranking is present than when it is absent. In the subsequent period, employees who were compelled to contribute and actually contributed above the reported historical maximum amount are licensed to misreport performance. Results suggest that prior good deeds license employees to engage in bad deeds.

The Effect of Management Controls on Employees' Decision Making

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