Emotions and Managerial Judgment: Evidence from Sunshine Exposure

60 Pages Posted: 25 May 2017 Last revised: 29 Oct 2019

See all articles by Chen Chen

Chen Chen

Monash University - Department of Accounting

Yangyang Chen

City University of Hong Kong (CityUHK) - Department of Accountancy

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Edward Podolski

Deakin University; Financial Research Network (FIRN)

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area

Date Written: October 28, 2019

Abstract

We examine the role and economic consequences of emotions in influencing the judgment of corporate executives. Analyzing a large sample of U.S. public firms, we find that sunshine-induced good mood leads managers to make upwardly biased earnings forecasts. Importantly, our evidence implies that managers become less susceptible to the sunshine priming effect when the information environment is more certain, external monitoring is stricter, and managerial incentive structures are stronger. Additional results suggest that market participants are capable of unraveling sunshine-induced biased forecasts, and that managers who are prone to the sunshine priming effect impose costs on their firms in the form of higher information risk and equity financing costs. Reflecting that labor markets also play a disciplinary role, we find that mood prone managers suffer adverse career outcomes. Our paper is the first large-scale study to document the nuanced ways in which emotions affect top executives.

Keywords: Weather-induced mood; Optimism; Management earnings forecasts

JEL Classification: G02, G30, M40, M41

Suggested Citation

Chen, Chen and Chen, Yangyang and Pittman, Jeffrey A. and Podolski, Edward and Veeraraghavan, Madhu, Emotions and Managerial Judgment: Evidence from Sunshine Exposure (October 28, 2019). Available at SSRN: https://ssrn.com/abstract=2973184 or http://dx.doi.org/10.2139/ssrn.2973184

Chen Chen

Monash University - Department of Accounting ( email )

Building H, Level 3
Caulfield campus
Melbourne, Victoria 3800
Australia

Yangyang Chen (Contact Author)

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

Edward Podolski

Deakin University ( email )

221 Burwood Highway
Burwood, Victoria 3125
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area ( email )

Bangalore
Manipal, Karnataka 576104
India
+91-820-2701030 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
362
Abstract Views
2,122
rank
94,766
PlumX Metrics