Krishnan's 'honesty' research earns notable contribution award

Ranjani Krishnan

The American Accounting Association has given the 2004-05 Notable Contributions to Management Accounting Literature Award to Broad School Associate Professor Ranjani Krishnan for her co-authored paper, "Honesty in Managerial Reporting," published in The Accounting Review. Krishnan's co-authors were John H. Evans, III, and Donald V. Moser, University of Pittsburgh, and R. Lynn Hannan, Georgia State University.

The study examines how preferences for wealth and honesty affect managerial reporting. Krishnan and her colleagues found that even when honest reporting results in significant loss of payoff, there was considerable honesty among the subjects. They also found less honesty under a contract that provides a smaller share of the total surplus to the manager, suggesting that the fairness of the distribution between the manager and the firm influences honest reporting decisions by managers.

The authors suggest a modified version of a managerial incentive contract that makes use of subjects' preference for honest reporting, instead of contracts that assume that all managers are honest or that all managers are dishonest. This study has implications for design of managerial incentive contracts in firms.

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