Behavioral Economics of Accounting: A Review of Archival Research on Individual Decision Makers

112 Pages Posted: 15 Sep 2021 Last revised: 9 Nov 2021

See all articles by Michelle Hanlon

Michelle Hanlon

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Kelvin Yeung

City University of Hong Kong (CityU) - College of Business

Luo Zuo

Cornell University - Samuel Curtis Johnson Graduate School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: November 8, 2021

Abstract

This paper develops a unified framework to synthesize the growing stream of positive research on the role of individual decision makers in shaping observed accounting phenomena. This line of research recognizes two central ideas in behavioral economics. First, individual behavior depends not only on economic incentives and accessible information, but also on individual preferences, abilities, experiences, and other characteristics. Second, the constraints that structure human interactions encompass both formal institutions (e.g., rules, laws, constitutions) and informal institutions (e.g., norms, conventions, rituals). Our review covers a broad set of individuals that are of interest in accounting research: managers, directors, audit partners, analysts, standard setters, politicians, judges, journalists, loan officers, financial advisors, and investors. We aim to understand the systematic effects of individual characteristics on a wide spectrum of accounting phenomena including financial reporting, disclosure, tax planning, auditing, and corporate social responsibility. We highlight the importance of personal characteristics not only for an individual’s own behavior, but also for others’ perceptions. Our review mainly focuses on archival research in accounting and provides some thoughts about opportunities for archival empiricists going forward. We also, when feasible, highlight opportunities for future field, survey, and experimental research. A central takeaway from our review is that individual-level factors significantly improve our ability to explain and predict accounting phenomena beyond firm-, industry-, and market-level factors.

Keywords: Accounting, behavioral economics, individual decision makers, Homo economicus, Homo sapiens, informal institutions.

JEL Classification: M4, G2, G3, G4.

Suggested Citation

Hanlon, Michelle and Yeung, Kelvin and Zuo, Luo, Behavioral Economics of Accounting: A Review of Archival Research on Individual Decision Makers (November 8, 2021). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3923891 or http://dx.doi.org/10.2139/ssrn.3923891

Michelle Hanlon

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
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Cambridge, MA 02142
United States
617-253-9849 (Phone)

Kelvin Yeung

City University of Hong Kong (CityU) - College of Business ( email )

83 Tat Chee Avenue
Academic Building (LAU)
Kowloon Tong, 12200
Hong Kong

Luo Zuo (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

349 Sage Hall
Ithaca, NY 14853
United States
607-255-4002 (Phone)

HOME PAGE: http://www.johnson.cornell.edu/faculty-research/faculty/lz352/

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