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Natural Optimism in Financial Reporting: A State of Mind

Posted: 3 Mar 2015  

Gregory Paul Capps

Independent

Lisa Koonce

University of Texas

Kathy R. Petroni

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management

Date Written: March 2, 2015

Abstract

The objective of this paper is to cohesively introduce the notion of natural optimism into the accounting literature and to provide insights into the role of natural optimism in financial reporting on the part of firm managers. To accomplish this, we first discuss the research that demonstrates that optimism is the natural state of mind for most people and therefore we believe that firm managers involved in preparing financial statements are likely to exhibit naturally occurring optimism. Second, we identify where natural optimistic reporting is most likely to occur in financial reporting. Third, we address the challenges involved with mitigating or eliminating natural optimism in financial reporting. Finally, we address the relationship between optimism and overconfidence because these two concepts are often used interchangeably in the accounting literature despite their conceptual differences.

Keywords: Natural optimism

JEL Classification: M40

Suggested Citation

Capps, Gregory Paul and Koonce, Lisa and Petroni, Kathy R., Natural Optimism in Financial Reporting: A State of Mind (March 2, 2015). Available at SSRN: https://ssrn.com/abstract=2572548 or http://dx.doi.org/10.2139/ssrn.2572548

Gregory Paul Capps

Independent ( email )

No Address Available

Lisa L. Koonce (Contact Author)

University of Texas ( email )

Dept. of Accounting
McCombs School of Business
Austin, TX 78712
United States
512-471-5576 (Phone)
512-471-3904 (Fax)

Kathy Ruby Petroni

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States
517-432-2924 (Phone)
517-432-1101 (Fax)

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