Does Self-Certification Encourage or Reduce Opportunistic Behavior?

Abstract

ABSTRACT We experimentally investigate the effectiveness of a self-certification requirement as an informal control to reduce opportunistic behavior. We predict and find that a requirement that managers sign to take sole responsibility for their decisions—even though the decision is kept private—acts as a “double-edged sword.” Using a capital investment setting involving two decision stages, we find that self-certifying managers are less likely to behave opportunistically at the first stage. However, at the second stage, managers are more likely to behave opportunistically if they previously self-certified an opportunistic decision. Additional analysis indicates that a monitoring-based control removes the effectiveness of self-certification altogether. Overall, we find that the effectiveness of a self-certification requirement in reducing opportunistic behavior is bounded by its timing and the presence of other controls; it is potentially useful when managers are making a first decision, and only in the absence of a formal monitoring system. Data Availability: Data available upon request. Please contact the authors.