Social Interdependence Theory

Agency theory and stakeholder theory suggested that stakeholders cannot directly oversee man- agers to manage a company on their own, which is why there should be an AC to perform the oversight role. However, the theories remain salient on what factors influence EAs’ trust in ACMs and how their trust may improve their interactions. Social interdependence theory pro- vides insights into these issues and states that people have interactions because the cost and re- ward of an actor is dependent on another actor’s actions in a relationship.

Deutsch (1949) suggested that social independence exists when individuals’ achievement of out- comes is influenced by the actions of other people. There are two types of social interdependence. The first type is positive interdependence if the actions of one individual positively influence the achievement of another individual’s goal. The second type is negative interdependence if the ac-

tions of one individual negatively influence the achievement of another individual’s goal. Since trust relates to positive interdependence, only positive interdependence is discussed in this study. If there is positive interdependence, individuals may cooperate because their actions may enable them to achieve own goals. Therefore, their actions become effective. As an implication, their actions increase the probability of attaining a goal. If so, the individuals may demonstrate coop- erative behaviour (Bertucci et al., 2016; Choi and Johnson, 2011; Johnson and Johnson, 2015, 2009, 2005; Johnson et al., 1991; Ortiz, Johnson and Johnson, 1996; Lew et al., 1986a, 1986b; Mesch, Johnson and Johnson, 1988; Mesch et al., 1986; Deutsch 1949).

This theory proposes three psychological processes (Johnson and Johnson, 2015, 2009, 2005, 2009, 1981; Johnson 2003; Kramer and Brewer 1984; Deutsch 1949). The first process is substi- tutability. If there is positive interdependence, one individual may substitute their actions for others’ actions (Johnson and Johnson 2015, 1981; Johnson et al., 2010; Johnson 2003; Kramer and Brewer 1984; Deutsch 1949). For instance, Lewis and Franklin (1944) observed that if an actor completes required tasks, that person’s action substitutes for one’s actions, thereby reduc- ing the tension stemming from interruption. This may then reduce their anxiety so that they can exchange information (Johnson and Johnson, 2015, 2009, 2005; Ryan, 1982; Pittman, 1980) and resources (Bertucci et al., 2016; Johnson and Johnson, 2015, 2009, 1992; Johnson, 1974; Craw- ford and Haaland, 1972; Laughlin and McGlynn, 1967). They may also render help and assis- tance to others (Bertucci et al., 2016; Johnson and Johnson, 2015, 2009, 2003). Actors may be

encouraged to challenge each other’s conclusions and reasoning to promote higher quality deci- sion making and greater insight into problems (Johnson and Johnson 2015, 1979, 1995, 1992, 1979).

The second process is formation of positive cathexis, which is concerned with the investment of psychological energy in others as opposed to oneself (Bertucci et al., 2016; Johnson and Johnson, 2015, 2009, 2005, 1981; Johnson 2003; Kramer and Brewer, 1984; Deutsch 1949). The cathexis attached to one’s actions may also be extended to another individual. This may be used to ex- plain why one individual trusts another. It presumes that if an organism is to survive, it has to respond positively to events that enhance its well-being and respond negatively to events that reduce its well-being. Therefore, if effective actions are cathected positively, one may like the person who performs the effective actions (Bertucci et al., 2016; Johnson and Johnson, 2015, 2009, 2006). Thus, positive cathexis encourages actors to act in trustworthy ways (Bertucci et al., 2016; Johnson and Johnson 2015, 2009; Johnson 1974; Deutsch, 1962, 1960, 1958; Johnson and Noonan, 1972). Koestner et al. (2002) conducted two experiments and observed a positive rela- tionship between the progress toward achieving goals and positive affect over time. Negative progress towards goal attainment was negatively associated with negative affect.

The last process is inducibility, which refers to the openness to being influenced and to influenc- ing others (Johnson and Johnson, 2015, 2003, 1981; Kramer and Brewer 1984; Deutsch 1949). If positive interdependence exists and they may have cooperative behaviour, one can easily induce

another individual to engage in actions that obtain the goals, or not engage in actions that inter- fere with the achievement of goals (Johnson and Johnson, 2015, 2006, 1981; Johnson, 2003; Kramer and Brewer, 1984; Deutsch, 1949). Inducibility may encourage actors to contribute their effort (Johnson and Johnson, 2015, 2009; Choi and Johnson, 2011; Stanne, Johnson and Johnson, 1999; Pallak, Cook and Sullivan, 1980; Wicklund and Brehm, 1976) and influence another’s ef- forts to attain common goals (Bertucci et al., 2016; Johnson and Johnson, 2009; Johnson et al., 1985; Crombag, 1966; Raven and Eachus, 1963; Deutsch, 1949b).

When viewed collectively, if actors interdepend on one another to achieve common goal and have positive independence, actors may be motivated to strive for mutual benefit (Bertucci et al., 2016; Johnson and Johnson, 2015, 2009, 1989; Deutsch, 1949b), so they may have more effec- tive interactions, and ultimately improve their operations.

Prior studies support the views that if actors have common goals, they may have positive interac- tions in accordance with social interdependence theory. In a study that aimed to examine social independence theory in information system development, Pee, Kankanhalli, and Kim (2012) suggested that perceived interdependence in terms of goal, task and reward enhance knowledge sharing between business professionals and external IT consultants during the development of information system. They found that their interdependence facilitates knowledge sharing, thereby leading to better performance. In a study that investigated the effects of trust and dependence on knowledge sharing in the context of information system development, Lee et al. (2015) con-

firmed that dependence and trust facilitate knowledge sharing. Ghobadi and D’Ambra (2013) used the social interdependence theory to explain high quality knowledge sharing in cross- functional software development teams. They suggested that the interdependence of partners promotes cooperative behaviour, which may facilitate high quality knowledge sharing. They ob- served that outcome interdependence means interdependence and boundary interdependence - all positively related to cooperation and high quality knowledge sharing.

These findings may be applicably on the relationships between EAs and ACMs in external audits. Since they interdepend on one another to perform high quality audit to reduce the information asymmetries between managers and stakeholders, there is a possibility of positive interdepend- ence since they have common goals. They interdepend on one another, so any factor that helps them achieve their common goals may influence their levels of trust, such as the ACMs’ compe- tence, integrity and goodwill. With high levels of trust, they believe that their interactions facili- tate the attainment of common goals (high audit quality). They may be willing to spend their time exploring recommendations to improve internal control systems. They may share their ex- perience so that they understand how to improve the financial reporting processes and internal control systems. If EAs expect the ACMs to help them provide high audit quality, they may react positively to ACMs. Since they react positively, they may not engage in actions interfering with high audits quality and become willing to interact with one another. For example, they may will- ingly contribute their resources such as efforts and expertise in the audit process and share in-

formation so as to obtain a better understanding of client’ operation and managers’ integrity. These measures, in turn, improve the effectiveness and efficiency of the audit processes.