Accounting Information Aggregation and Managerial Cooperation

Abstract

Managers in decentralized organizations often face incentives against cooperation. In these situations, accounting information can increase cooperation when it reveals the cooperativeness of other managers’ prior actions. The extent to which accounting information reveals other managers’ prior actions, however, can depend on its aggregation. This study provides theory-consistent experimental evidence of the effects of accounting information aggregation on managerial cooperation when managers face incentives against cooperation. Based on the psychology theory of non-consequential reasoning, I predict and find that managerial cooperation is higher when accounting information is aggregated than when it is disaggregated. When accounting information is aggregated and does not reveal the cooperativeness of managers’ prior actions, individuals frame the decision to cooperate as a group decision and prefer cooperation because it is the only action that leads to the best group outcome.

Keywords: aggregation; non-consequential reasoning; cooperation; prisoner’s dilemma

JEL Classification: D81, M4