Mental Accounting and Disaggregation Based on the Sign and Relative Magnitude of Income Statement Items

• 成果类型: Article
• 署名作者: Bonner, Sarah E.; Clor-Proell, Shana M.; Koonce, Lisa
• 署名单位: University of Southern California; Texas Christian University; University of Texas System; University of Texas Austin
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-50838
• 发表日期: 2014
• 页码: 2087-2114
• 关键词: earnings management; social projection; prospect-theory; disclosure; DECISION; preferences; empathy

摘要

Current financial reporting guidance allows managers flexibility as to whether to disaggregate income statement items. Such flexibility is problematic if managers prefer to aggregate in some situations and disaggregate in others because we conjecture that investors' evaluations of firms will predictably differ depending on whether performance information is shown in an aggregated or disaggregated fashion. We conduct a series of related experiments within the context of compound financial instruments to investigate whether managers' preferences follow the predictions of mental accounting theory; specifically, that presentation preferences vary as a function of the sign and relative magnitude of the income statement items. Results reveal that managers' disaggregation preferences reflect mental accounting. Further, the effects of mental accounting are moderated only when managers feel high pressure to report transparently. Finally, and most importantly, the preferred presentations of managers result in the highest firm valuations from investors, indicating that investors also rely on mental accounting. Our study has implications for standard setters, regulators, and researchers.