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Ethical Behavior Can Be Contagious

September 30, 2014

A new study from Penn State Smeal College of Business faculty members Steven Huddart and Hong Qu examines the power of social influence on managers’ ethical behavior. The Department of Accounting researchers find that managers tend to become more honest after observing honest peers and more dishonest after observing dishonest peers.

Through their research, Huddart and Qu find a connection between honest behavior and the desire to obey social norms. In absence of information about peers, they find, “People with a greater tendency to conform to social norms are, on average, more honest.”

However, find the researchers, managers tend to adjust their responses based on information about their peers. If managers find that their peers are acting more honestly, those managers adjust to be more honest. On the other hand, if managers find that their peers are acting more dishonestly, the managers adjust to be less honest.

The more that a person was found likely to conform to social norms, the more this variation was evident.

“Our study shows the importance of social information in shaping actions. In particular, we identify one channel through which social information affects behavior, that is, the motivation to conform to the actions of others,” they write. “The observation of others can lead to behavior changes in different ways because the behavior of others can establish benchmarks for social comparisons in multiple dimensions.”

“Rotten apples and sterling examples: Moral reasoning and peer influences on honesty in managerial reporting” is forthcoming and is available for download at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2133072. Authors Steven Huddart, Smeal Chaired Professor in Accounting, and Hong Qu, assistant professor of accounting, are members of the faculty in the Penn State Smeal College of Business. Huddart also serves as chair of the Department of Accounting.

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