Alisa G. Brink

The Effects of Risk Preference and Loss Aversion on Individual Behavior Under Bonus, Penalty, and Combined Contract Frames

This study examines the effects of risk preference and loss aversion on individual responses to differently framed, yet economically equivalent, incentive contracts. We extend prior research by examining contracts with combinations of bonus, penalty, and clawback incentives. Contracts framed as a combination of bonus and penalty incentives, especially those framed as a clawback, are less attractive to participants than contracts with bonusor penalty-only incentives. Further, research suggests that individuals’ contract preferences are due primarily to loss aversion. We test this conjecture with a new measure of loss aversion. Results indicate that our measure of loss aversion is well calibrated to encompass variation in loss aversion. In addition, participants’ loss preferences explain a significant portion of the differences in observed behavior. Importantly, this relation is less significant for clawback contracts, indicating that other preferences may be driving individuals’ strong reactions to these contract frames.

Who’s the Boss? The Economic and Behavioral Implications of Various Characterizations of the Superior in Participative Budgeting Experiments

In most organizations, budgets are important mechanisms for planning and control and for motivating subordinate performance. Accordingly, budgeting is one of the most extensively studied topics in managerial accounting. We analyze previous research by first classifying studies according to their characterization of the superior which we label Homo Economicus, Homo Optimas and Homo Vivas. Homo Economicus is a rational economic agent who accepts all budgets because it is in her best interest to do so. Homo Optimas employs the optimal hurdle-rate contract. Finally, Homo Vivas is an experimental participant whose role depends on the decisions she is allowed to make as determined by the experimental design. We explore the economic and behavioral implications of each type of superior for the interpretation of extant research and we provide directions for future research in participative budgeting.

Pedagogical Training in Ph.D. Programs: How Does Accounting Compare to Similar Disciplines?

Abstract Purpose We examine and compare current practices in teaching preparation in U.S. accounting, finance, management, and economics doctoral programs. Methodology/approach We conduct an anonymous online survey of the pedagogical training practices experienced by Ph.D. students in accounting, finance, management, and economics programs in the United States. Findings Results indicate that accounting, finance, and management perform similarly with respect to providing doctoral students with first-hand teaching experience and requiring for-credit courses in teacher training. Accounting and management appear to utilize doctoral students as teaching assistants less than the other disciplines. A lower proportion of accounting doctoral students indicate that their program requires proof of English proficiency prior to teaching, and pedagogical mentoring is rare across disciplines. Accounting and management doctoral students feel more prepared to teach undergraduate courses compared to finance and economics students. However, all disciplines indicate a relative lack of perceived preparation to teach graduate courses. Practical implications This study provides empirical evidence of the current practices in pedagogical training of accounting, finance, management, and economics doctoral students. Social implications The results highlight several areas where accounting could possibly improve with regard to pedagogical training in doctoral programs. In particular we suggest (1) changes in the teaching evaluation process, (2) development of teaching mentorships, (3) implementing a teaching portfolio requirement, and (4) incorporation of additional methods of assisting non-native English speakers for teaching duties. Originality/value The study fills a gap in the literature regarding the pedagogical training in accounting doctoral programs.

Reporting Fraud: An Examination of the Bystander Effect and Evidence Strength

Abstract We conduct an experiment to examine the occurrence of the bystander effect on willingness to report a fraudulent act. Specifically, we investigate the impact of evidence strength on managers’ decisions to blow the whistle in the presence and absence of other employees who have knowledge of the wrongdoing. Results indicate that when there is strong evidence indicating a fraudulent act, individuals with sole knowledge are more likely to report than when others are aware of the fraudulent act (the bystander effect). However, the bystander effect is not found when evidence of fraud is weak. Further, a mediated moderation analysis indicates that perceived personal responsibility to report mediates the relation between others’ awareness of the questionable act and reporting likelihood, suggesting that the bystander effect is driven by diffusion of responsibility. Our results have implications for all types of organizations that wish to mitigate the detrimental effect of fraud. Specifically, training or incentives may be necessary to overcome the bystander effect in an organization.

Fundamentals, momentum, and bubbles in experimental asset markets

Purpose - – The purpose of this paper is to report the results of a study concerning how fundamental-motivated investors, and their subsequent impact on the path of prices, affect the severity of price bubbles in an experimental laboratory asset market. Design/methodology/approach - – In a laboratory experiment, asset markets are manipulated by systematically replacing inexperienced human traders with automated traders programmed to submit bids and asks at fundamental value. Findings - – When traders in a market are automated to invest on fundamentals, deviations from fundamental value are initially suppressed, but reappear when automated traders cease to influence prices. A significant reduction in the severity of the resulting bubble may be attributed to the interaction of automated traders and humans through the initial path of prices when controlling for changes in liquidity. This reduction corresponds to reduced autocorrelation in the time series of returns. Originality/value - – This paper represents the first attempt (to the authors’ knowledge) to extend the intervention approach of the seminal paper by Smith

The Impact of Rule Precision, Information Ambiguity, and Conflicting Incentives on Aggressive Reporting

Abstract There has been much discussion regarding the necessity of moving away from precise (rules-based) standards toward less precise (principles-based) standards. This study examines the impact of the proposed shift by using a controlled experiment to evaluate the influence of rule precision and information ambiguity on reporting decisions in the presence of monetary incentives to report aggressively. Using motivated reasoning theory as a framework, we predict that the malleability inherent in both rule precision and information ambiguity amplify biased reasoning in a manner that is consistent with individuals’ pecuniary incentives. In contrast, consistent with research exploring ambiguity aversion we predict that high levels of ambiguity will actually attenuate aggressive reporting. Our results support these predictions. Specifically, we find an interactive effect between rule precision and information ambiguity on self-interested reporting decisions at moderate levels of ambiguity. However, consistent with ambiguity aversion, we find decreased self-interested reporting decisions at high levels of ambiguity relative to moderate ambiguity. This study should be of interest to preparers, auditors, and regulators who are interested in identifying situations which amplify and diminish aggressive reporting.