A Reexamination of Behavior in Experimental Audit Markets: The Effects of Moral Reasoning and Economic Incentives on Auditor Reporting and Fees*

This study uses experimental markets to investigate how moral reasoning influences auditor reporting under different levels of economic incentives. In each multiperiod market, auditor subjects could either (1) misreport low observed outcomes as high and thereby reap economic advantages at the expense of third‐party investors, or (2) truthfully report low observed outcomes as low but thereby forgo the economic advantages of misreporting. We extend the Calegari, Schatzberg, and Sevcik 1998 experimental‐markets setting to incorporate moral reasoning, and test hypotheses based on the economic model of Magee and Tseng 1990 and the neo‐Kohlbergian moral reasoning framework of Rest, Narvaez, Bebeau, and Thoma 1999. We document a significant effect of moral reasoning on auditor behavior. Specifically, we find that misreporting and premium fees are more likely with higher than with lower moral reasoning subjects, and the moral reasoning effect diminishes as economic penalties increase in the market. These findings provide valuable insights for specifying the determinants of auditor misreporting, the observable behaviors that signal its existence, and the institutions that can prevent its occurrence in the market. We conclude that the relation between moral reasoning and behavior is more complex than commonly assumed in the accounting literature, and identify directions for future research.     

Social Security,Government Finance,and Savings*

This paper considers the impact of social security and the government financing mix on saving behaviour and aggregate economic activity. The theoretical argument for the neutrality of these actions is shown to have validity only if we consider the economy as behaving like a composite individual. Particular individuals do not face the same marginal rates of substitution and transformation as the hypothetical composite, due to corner solutions, illusions, and important distribution effects. Empirically, neutrality for the whole economy depends on the relative strengths of the offsetting forces faced by the individuals. Our findings with Australian data suggest that neither the level of aged pensions, nor the government financing mix, have substantial real effects on aggregate saving behaviour.     

AGENCY COSTS AND THE PERFORMANCE IMPLICATIONS OF INTERNATIONAL JOINT VENTURE INTERNALIZATION

Recent studies have examined the determinants of international joint venture (IJV) formations and stock market reactions to such investments. Less is known, however, about the evolution of IJVs and the attendant performance implications for parent firms. This paper examines one specific type of IJV evolution, IJV internalization, whereby one firm acquires the IJV by buying out its partner(s). Standard agency theory variables are hypothesized to influence parent firm valuation effects. The results indicate that parent firm valuation effects are positively related to the parent firm equity owned by insiders and the interaction of debt financing and free cash flow. © 1997 by John Wiley & Sons, Ltd.     

STRATEGY AND CONTROL IN SUPPLIER–DISTRIBUTOR RELATIONSHIPS: AN AGENCY PERSPECTIVE

This paper examines the influence of competitive strategy on the relationship between suppliers and their distribution networks. Drawing on agency theory, hypotheses are developed specifying the appropriate match between manufacturer strategies and systems of control within distribution channels. Cluster analysis is used to show distinct differences in channel management and structure for the three generic strategies of cost leadership, differentiation and focus. Results suggest that variation in control relationships may be explained by the demands posed by manufacturers' competitive strategies. This study therefore extends the applicability of Porter's typology to the specific structure of distribution channels and shows that agency theory can provide insights into the economic basis of interorganizational relationships.     

Previous Marriage and the Lesbian Wage Premium

This paper provides insight into the wage gap between partnered lesbians and other groups of women. Using data from the 2000 Decennial Census, we find that wages of never-married lesbians are significantly higher than wages of previously married lesbians and other groups of women. Results indicate that controlling for previous marriage reduces the estimated lesbian wage premium by approximately 20 percent. Our research also reveals that wage patterns of previously married lesbians mirror those of cohabiting heterosexual women. Overall, our results are consistent with the notion that the lesbian wage premium is driven, in part, by differences in the labor-market commitment of lesbians and heterosexual women.