Decisions Under Persuasion

43 Pages Posted: 11 Dec 2019

See all articles by Chung-Yu Hung

Chung-Yu Hung

University of Melbourne, Department of Accounting

Margaret A. Abernethy

University of Melbourne, Department of Accounting

Christian Hofmann

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

Laurence van Lent

Frankfurt School of Finance & Management gemeinnützige GmbH - Accounting Department

Date Written: November 10, 2019

Abstract

Many decisions are made based on persuasion. We examine information production and decision quality when persuasion occurs. Information underproduction arises when agents do not expect that their efforts in information production will lead to approval decisions. We use a setting where an agent seeks approval for a decision from an “approver.” We find that approvers’ decisions are more lenient (i.e., in favor of agents’ proposals) when their decisions rely on information supplied by agents than when they do not. However, the quality of decisions based on agents’ information is poorer than those based on approvers’ information. Taken together, our evidence suggests that the persuasion process is associated with bad news underproduction and relates to decision leniency and poor decision quality. We also show that the problem of information underproduction is less salient when the persuasion process occurs within firms than between firms.

Keywords: persuasion; information production; soft information; hierarchical decision-making; organizational structure

JEL Classification: D82; L22; M49

Suggested Citation

Hung, Chung-Yu and Abernethy, Margaret A. and Hofmann, Christian and van Lent, Laurence, Decisions Under Persuasion (November 10, 2019). Available at SSRN: https://ssrn.com/abstract=3492407 or http://dx.doi.org/10.2139/ssrn.3492407

Chung-Yu Hung (Contact Author)

University of Melbourne, Department of Accounting ( email )

198 Berkeley Street
Melbourne, Victoria 3053
Australia

Margaret A. Abernethy

University of Melbourne, Department of Accounting ( email )

Victoria
Melbourne, Victoria 3010 3010
Australia
+61 3 8344 7655 (Phone)
+61 3 9349 2397 (Fax)

Christian Hofmann

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, DE 80539
Germany

Laurence Van Lent

Frankfurt School of Finance & Management gemeinnützige GmbH - Accounting Department ( email )

Adickesallee 32-34
Frankfurt, 60322
Germany
+4969154008531 (Phone)

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