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Book part
Publication date: 25 September 2020

Ahmet Coşkun and Mehtap Karakoç

The kinds of decisions people make or how they react to certain situations could differ according to the society, atmosphere or environment those people come from. Studies…

Abstract

The kinds of decisions people make or how they react to certain situations could differ according to the society, atmosphere or environment those people come from. Studies about the influence of human behaviors on economics, business and actions were initiated by analyzing human behaviors and those studies carry on into behavioral finance and behavioral accounting.

In previous years, the models used were based on the assumption that people behave rationally while making decisions. These models lost validity recently and behavioral accounting started to search for the influences affecting human behaviors. They started considering not only the people who prepare accounting data but also the people who take advantage of this data. People’s environment, cultural differences, psychological and sociological factors have entered into the accounting’s field of interest as factors that have an influence on behavior.

The aim of this study is to try to analyze the theoretical bases and extent of behavioral accounting, which focuses on the human behavior factors being observed while creating or using financial reports. The authors also aim to contribute to the literature by including the neuroaccounting dimension into the analysis.

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Uncertainty and Challenges in Contemporary Economic Behaviour
Type: Book
ISBN: 978-1-80043-095-2

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Book part
Publication date: 8 September 2017

Hassan R. HassabElnaby, Ahmed Abdel-Maksoud and Amal Said

Decision-making rationality is said to be bounded by managers’ cognitive capabilities. Recent studies indicate that accounting functions evolved to augment the cognitively…

Abstract

Decision-making rationality is said to be bounded by managers’ cognitive capabilities. Recent studies indicate that accounting functions evolved to augment the cognitively bounded human brain in handling complex economic exchanges. The neuroscience discipline suggests that human brains have the ability to implement “automatic” processes of positive versus negative emotional stimuli to make rational decisions. Neuroscientific evidence shows that the activations in the ventral striatum decrease with negative emotional information/motives and increase with positive emotional information/motives. The authors, hence, argue that our understanding of the decision-making rationality in financial and managerial decisions could be enhanced by using a functional neuroimaging approach.

Decision-making rationality has been focal in debt covenant violation and earnings management research. The contracting theory predicts a relationship between managers’ decisions and the proximity of violating debt covenants. However, no prior research has investigated brain activities associated with the evaluation of debt covenant violation and earnings management. Meanwhile, in another strand of research, there is an extensive prior literature concerning the consequences of managers’ decisions and the use of accounting information in relation to their evaluative style, i.e., supervisory style. The authors argue that the relationship between the proximity to debt covenants violation and earnings management incentives is contingent upon managers’ supervisory style. However, no previous research has examined the impact of the supervisory style on earnings management in the context of the proximity to debt covenants violation and other earnings management incentives.

In this research note, we argue that neuroaccounting could be relied on to examine the relationship between the proximity to debt covenants and earnings management, contingent upon managers’ supervisory style, by capturing brain activities. The adoption of the neuroscience functional neuroimaging approach in this field should contribute to the understanding of managers’ behaviors and provide implications for research and practitioners. The goal of this research note is to provide a new avenue for future research in this field.

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Advances in Accounting Behavioral Research
Type: Book
ISBN: 978-1-78714-527-6

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Book part
Publication date: 25 September 2020

Abstract

Details

Uncertainty and Challenges in Contemporary Economic Behaviour
Type: Book
ISBN: 978-1-80043-095-2

To view the access options for this content please click here
Book part
Publication date: 8 September 2017

Abstract

Details

Advances in Accounting Behavioral Research
Type: Book
ISBN: 978-1-78714-527-6

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Article
Publication date: 11 November 2019

Mrinalini Srivastava, Gagan Deep Sharma and Achal Kumar Srivastava

This study aims to review the relationship between neurological processes and financial behavior from an interdisciplinary perspective. Individual decision-making is…

Abstract

Purpose

This study aims to review the relationship between neurological processes and financial behavior from an interdisciplinary perspective. Individual decision-making is influenced by cognitive and affective biases; hence, it becomes pertinent to understand the origin of these biases. Neurofinance is an emerging field of finance budding from neuroeconomics and explains the relationship between human brain activity and financial behavior, drawn from interdisciplinary fields, including neurology, psychology and finance.

Design/methodology/approach

This conceptual paper extensively reviews the extant literature and performs meta-analysis to attain its research objectives.

Findings

The paper highlights the use of neuroimaging techniques in mapping the brain areas to help understand the processes in the higher cognitive areas of brain. The paper raises some new questions regarding individual preferences and choices while making financial or non-financial decisions.

Originality/value

The special focus on dysfunctions arising in brain because of injury and their impact on decision-making is also a key point in this paper and is summarized using meta-analytic forest plot. The existing literature provides instances where emotional processing is altered by injury in brain and may lead to more advantageous decisions, especially in risky situations.

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International Journal of Ethics and Systems, vol. 35 no. 4
Type: Research Article
ISSN: 2514-9369

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Article
Publication date: 3 May 2016

Avo Schönbohm and Anastasia Zahn

The purpose of this paper is to develop a framework for an enlightened management and governance praxis against a backdrop of cognitive and motivational biases promoting a…

Abstract

Purpose

The purpose of this paper is to develop a framework for an enlightened management and governance praxis against a backdrop of cognitive and motivational biases promoting a reflected international capital budgeting decision process. Furthermore, societally relevant questions are raised whether these biases might have an effect on various stakeholders in public–private partnerships. Recurring failures of international business investments motivate reflective, cognitive and socio-constructivist perspectives on the international capital budgeting process.

Design/methodology/approach

Based on an interdisciplinary literature review and substantiated by empirical studies, the cognitive biases and flaws of the international capital budgeting process are discussed making use of a five-stage process scheme. The article applies the interpretative paradigm and regards the international capital budgeting process stages as a socio-political process of reality construction and critically assesses the motives of its actors. Consequently, the authors develop and discuss three principle-based behavioural rationalisation factors.

Findings

International capital budgeting is not a process of rational choice but of social construction of reality. Reflective prudence, critical communication and independence are three rationalisation factors which could, if applied along the five stages of the international capital budgeting process, systematically lead to de-biasing and thus enhance the performative praxis of international investment decisions.

Research limitations/implications

The international capital budgeting process deals with the construction of future scenarios under uncertainty and assessment of potential success and failure of future projects. The defined (or any other) rationalisation factors are subject to cultural biases and can naturally not guarantee successful investment projects. Although the success of the application of various de-biasing tactics was empirically confirmed, the aggregated rationalisation factors of the paper have not been tested.

Practical implications

The paper is aimed at enhancing the reflective understanding and the performative praxis of the international capital budgeting process. The practical recommendations aggregated in the rationalisation factors are explicitly elaborated for international business practitioners.

Social implications

Societally relevant questions are raised whether systematic biases have an effect on various stakeholders in international public–private partnerships. Especially in large investment projects, where capturing private value might be boosted by actively exploiting biases of the public decision makers, active stakeholder engagement could enhance the social and ecological value of investments.

Originality/value

The article provides a rare interdisciplinary literature review on cognitive biases in the international capital budgeting process. It critically reflects the social construction of it various stages and its social repercussions and develops practical rationalisation factors for an enhancement of the international capital budgeting process as a performative praxis.

Details

critical perspectives on international business, vol. 12 no. 2
Type: Research Article
ISSN: 1742-2043

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Article
Publication date: 2 February 2015

Kerri O’Donnell, Barry Hicks, John Streeter and Paul Shantapriyan

The purpose of this paper is to explore the increasing expectation against two concepts, information and process scepticism. In light of the Centro case judgement…

Abstract

Purpose

The purpose of this paper is to explore the increasing expectation against two concepts, information and process scepticism. In light of the Centro case judgement, directors’ decisions are held to increasing standards of due care and diligence.

Design/methodology/approach

This is a conceptual paper, drawing upon archival material, including statute law, case law, regulatory guidance material and media releases in Australasia. The authors review the statutory duty of care, skill and diligence expected of non-executive directors.

Findings

Whether a director has exercised an appropriate level of reasonable care and skill and/or due diligence has been a matter for the courts to decide. Such retrospective analysis leaves directors vulnerable to the uncertainty of whether their individual interpretation of diligence matches up to that of the presiding judge. The authors provide directors with a framework to apply scepticism to information and processes provided by those on whom the directors may rely.

Research limitations/implications

Two concepts are identified: reasonable reliance on others and the business judgement rule. The authors present arguments that challenge us to understand reasonable reliance, judgement and actions of directors in light of processing and information scepticism.

Practical implications

Directors do have a different role to that of auditors; incorporating scepticism can enable directors to fulfil their responsibility towards shareholders. By applying information and process scepticism, directors of companies can reduce the likelihood and magnitude of litigation costs and out-of-court settlements.

Originality/value

This paper provides a framework to apply scepticism to information and processes provided by people on whom the directors may rely.

Details

Managerial Auditing Journal, vol. 30 no. 2
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 26 August 2014

Christian Plesner Rossing and Carsten Rohde

– The purpose of this paper is to critically review the empirical transfer pricing literature as a means of determining the agenda for future research.

Abstract

Purpose

The purpose of this paper is to critically review the empirical transfer pricing literature as a means of determining the agenda for future research.

Design/methodology/approach

The review is carried out primarily by searching databases, academic journals and books. Second, professional surveys are reviewed to inform the development of research ideas.

Findings

The understanding and ability to explain international transfer pricing in practice remain limited despite a rapidly increasing tax regulatory pressure on multinational enterprises. One important explanatory factor is that accounting and tax research has not been integrated to a sufficient extent. As a consequence, rather isolated research streams and knowledge building have taken place, failing to leverage the synergies of a combined research approach.

Research limitations/implications

A stronger emphasis on the outcome of specific transfer pricing system designs would improve the literature’s current status in terms of whether the objectives aimed at by the system are actually achieved. A new framework and promising research questions are proposed to guide future work on this issue.

Practical implications

The proposed framework may serve as guidance for practitioners seeking to assess the performance of specific transfer pricing systems and potentially provide directions for refinement of current system designs when dysfunctional consequences are identified.

Originality/value

Previous transfer pricing research has taken a rather isolated approach. This paper is an attempt to guide future transfer pricing research towards an inter-disciplinary approach.

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Article
Publication date: 4 December 2017

Wilson Li, Tina He, Andrew Marshall and Gordon Tang

The purpose of this paper is to explore the demand for conditional accounting conservatism from equity shareholders in state-controlled firms.

Abstract

Purpose

The purpose of this paper is to explore the demand for conditional accounting conservatism from equity shareholders in state-controlled firms.

Design/methodology/approach

This study presents empirical investigation of firms listed on Hong Kong Stock Exchange from 1997 to 2013.

Findings

The first finding is the extent of conditional conservatism in state-controlled firms increases when the leverage ratio decreases. It is also found that the high control rights held by the government in state-controlled firms are associated with high conditional conservatism. In addition, further analyses document the an offsetting effect between high control rights and firm leverage; a reinforcing effect between high control rights and year of incorporation after 1992; and a substituting effect between high control rights and dividend payments.

Originality/value

These findings suggest that the demand from equity shareholders, in addition to the debt demand, can be an important determinant of conditional conservatism and examination of these differing sources of demand can enhance the understanding on accounting conservatism in state-controlled firms.

Details

Asian Review of Accounting, vol. 25 no. 4
Type: Research Article
ISSN: 1321-7348

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