Mission, Mission on the Wall—Do You Have a Purpose After All?

In many organizational settings, managers have superior information relative to their supervisors. Managers can exploit their private information for personal benefits at the expense of the organization. Organizations use a variety of control instruments such as contract form and participative budgeting to reduce losses from information asymmetry; however budgetary misreporting can erode organizational surplus. We explore the effects of a control instrument commonly observed in practice, namely, organizational mission statements. We experimentally examine the effects of mission statements on budgetary misreporting and their interactive effects with contract form in a participative budgeting setting. We find that implementing a mission statement reduces misreporting. Not only is the existence of a mission statement an effective control mechanism, but the content of the mission statement is also relevant. When organizations use mission statements that emphasize organizational integrity, subordinates respond with greater honesty than when organizations use mission statements that emphasize financial goals. Additionally, we find that mission statements interact with contract form such that that the positive effect of a mission statement is more pronounced in the presence of a participative budgeting system that reduces managerial discretion. Our findings have implications for the design of control systems.