The Behavioral Effects of Approval Authority on Budget Reporting in Hierarchical Nonremote and Remote Environments

ABSTRACT We conduct two experiments to examine budget reporting in hierarchical work settings (owners, managers, and employees) under nonremote and remote conditions, respectively. We investigate employees’ and managers’ reporting behavior when managers have the authority to approve or reject employees’ budgets. We predict and find that the presence of budget approval authority increases employees’ honesty in both nonremote and remote environments. More importantly, exercising this authority has no significant impact on managers’ own honesty in nonremote settings but increases managers’ honesty in remote environments due to their enhanced empathy toward owners. Supplemental data further support our theory, suggesting that exercising approval authority leads to a higher level of affective empathy, which in turn increases managers’ honesty in remote environments. We discuss the implications of our findings for both research and practice. Data Availability: Experimental data are available from the authors upon request. JEL Classifications: M410.