Avoiding Accounting Fixation: Determinants of Cognitive Adaptation to Differences in Accounting Method

49 Pages Posted: 16 Feb 2005

See all articles by David T Dearman

David T Dearman

University of Arkansas at Fort Smith

Michael D. Shields

Michigan State University - Department of Accounting & Information Systems

Abstract

Much research over the last 30 years has provided evidence that individuals display accounting fixation; that is, their cognitive process does not appropriately adapt to cross-sectional or temporal differences in an accounting method. This study presents the results of a quasi-experimental test of the hypothesis that cognitive adaptation to a change in accounting method is an ordinal interactive function of three person characteristics: relevant accounting knowledge, general problem-solving ability, and intrinsic motivation to appropriately engage in the decision task. Based on a product-pricing decision task in which participants are provided with product costs reported by two generally-employed product-costing methods (activity-based costing (ABC) and volume-based costing), the results show that the majority of participants did not change their cognitive behavior when there was a change in the costing method. Further, those participants who did adapt to the change in accounting method, and thus avoided accounting fixation, did so by debiasing costs reported by volume-based costing but not by ABC. Finally, these adapters generally exhibited high values for all three of the person characteristics compared to those who did not adapt.

Keywords: Accounting fixation, accounting knowledge

JEL Classification: D82, M41, M46

Suggested Citation

Dearman, David T and Shields, Michael D., Avoiding Accounting Fixation: Determinants of Cognitive Adaptation to Differences in Accounting Method. Contemporary Accounting Research, Vol. 22, No. 2, Summer 2005. Available at SSRN: https://ssrn.com/abstract=666861

David T Dearman

University of Arkansas at Fort Smith ( email )

5210 Grand Ave.
P.O. Box 3649
Forth Smith, AR 72913-3649
United States

Michael D. Shields (Contact Author)

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States

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