Delegation of Decision Rights and Misreporting: The Roles of Incentive-based Compensation Schemes and Responsibility Rationalization

Our paper examines when and how the delegation of decision rights and incentive-based compensation schemes (two organizational-design choices) and responsibility rationalization affect managers’ misreporting behavior. One hundred and twenty-nine managers from manufacturing firms in the US completed an online survey. Our results suggest that managers’ responsibility rationalization moderates the relationships between the delegation of decision rights and misreporting, and incentive-based compensation schemes and misreporting. Despite our results providing no evidence of a simple mediating role of incentive-based compensation schemes on the relationship between the delegation of decision rights and misreporting, we find support for a moderated-mediation effect. Specifically, our results demonstrate that the indirect effect of the delegation of decision rights on misreporting via incentive-based compensation schemes is conditional on managers’ responsibility rationalization. The theoretical and practical implications of our findings are discussed.