Can honesty reminders reduce budgetary slack?

Chi Kwan Katherine Yuen, Singapore Management University

Abstract

This study investigates the effect of honesty reminders on budgetary slack. Based on the self-concept maintenance theory of Mazar, Amir, and Ariely (2008), I posit that honesty reminders can reduce budgetary slack by making people more aware of their own standards of honesty and lowering their dishonesty thresholds, resulting in more honest behavior. I find strong evidence that honesty reminders reduce budgetary slack and are marginally more effective than penalties in reducing budgetary slack. Finally, I find that honesty reminders have a stronger effect on slack reduction than penalties when the payoff for slack creation is higher.