DP9880 How effective are social norm interventions? Evidence from a laboratory experiment on managerial honesty

Author(s): Rajna Gibson, Carmen Tanner, Alexander F Wagner
Publication Date: March 2014
Date Revised: July 2014
Keyword(s): conformity, crowding-out, Honesty, Self-signaling, Situational social norms
JEL(s): C91, G02, G30, M14
Programme Areas: Labour Economics, Financial Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9880

Social norms can act as safeguards against corporate misconduct, but can also foster undesirable behavior. We conduct a laboratory experiment where we expose participants (in the role of CEOs) to social norms approving or disapproving of earnings management. There are systematic differences among individuals' reactions to the situational pressure. Specifically, individuals with strong preferences for truthfulness react less to both kinds of social norms. Self-signaling provides a convincing explanation of individual behavior. These findings have implications for the empirical analysis of managerial behavior and for the use of social norms as steering tools for corporate governance.