Joan L. Luft

Determinants of judgment performance in accounting settings: Ability, knowledge, motivation, and environment☆

Abstract The goal of this paper is to trace the development of our conceptions of the roles of ability, knowledge, motivation, and environment as determinants of decision performance in accounting settings, and provide a synthesis of the basic constructs, conceptual relations, and methodological guidelines that can be inferred from this diverse literature. We first outline the key characteristics of accounting settings and research principles appropriate for examining the characteristics. The primary emphasis is on identifying interactions between determinants of performance, specifying underlying cognitive processes, and abstraction based on theory and task analysis. We then demonstrate how selected studies which follow these basic principles have greatly enhanced our understanding of accounting-related decisions. Finally, suggestions for future research are presented.

Psychology Theory in Management Accounting Research

Abstract This chapter provides an introduction to psychology theories that have proven useful in management accounting research. Each theory is presented and discussed in the context of selected management accounting research that has used the theory. Because it is impossible to present a complete description and analysis of each theory, this chapter includes references to the psychology literature to guide researchers who want to learn more about any particular theory. This chapter concludes by summarizing what has been learned from psychology theory-based research on management accounting practices and identifying common themes in this literature.

Zimmerman's contentious conjectures: describing the present and prescribing the future of empirical management accounting research

We provide a discussion of three of Zimmermans (2001) conjectures about, and prescriptions for improving, the current unsatisfactory state of empirical management accounting research: its focus on describing practice instead of testing theories; its focus on decision-making instead of control; and reliance on social sciences other than economics. We suggest that these conjectures are based on inaccurate descriptions of current empirical management accounting research and the prescriptions offer potentially misleading guidance for future research. In contrast to Zimmerman (2001), we believe that the current research is guided by theory from a variety of social sciences (primarily economics, psychology and sociology) and that this diversity is appropriate for the applied field of management accounting. We argue that while economics provides a good basis for much empirical research in management accounting, other social sciences offer more potential to explain important features of management accounting such as understanding peoples preferences, how they think, how they interact with other people and the process of change. Our conclusion is that empirical management accounting research will be better off if it appeals less to disciplinary identity and instead uses a variety of theoretical frameworks from the social sciences to provide more complete explanations of management accounting practice.

Uncertainty and Industry Structure Effects on Managerial Intuition About Information Technology Real Options

Real options analysis is an important but costly tool for valuing many information technology (IT) investments. As a low-cost substitute for real options-based methods, firms often depend on managerial intuition, which sometimes approximates real options-based valuations and sometimes does not. Making good choices about how to value IT investments requires an understanding of why, and therefore when, intuitive judgment is more or less likely to be consistent with real options-based valuations. Field and survey studies have provided ex post observations of systematic variations in consistency by option type, but ex ante hypotheses explaining this variation have been rare. This study uses two behavioral economic theories to predict option-type-specific differences between intuitive judgments and real options prescriptions. Regret theory posits that individuals will value decision outcomes based on both the expected utility of payoffs and on anticipated regret for not having made an alternative decision. As a consequence, intuitive IT investment decisions are less aggressive as uncertainty increases (higher valuation of deferral options, lower valuation of growth options), in contrast to higher normative values for both real option types with higher uncertainty. Consistent with competitive behavior theories that predict overaggressive behavior to contest market behavior, intuitive IT investment decisions are more aggressive in the presence of a potential competitor (lower valuation of deferral and higher valuation of growth options), holding constant the normative value of the options. We present experimental evidence consistent with these predictions. An important implication of our results is that future research should not test for general consistency between intuitive judgment and real options theory, but should identify and explain systematic variation in consistency across option types and settings. Such variation is important in practice because it determines when intuitive judgment is and is not likely to be an adequate substitute for costly formal real options valuation. It also determines when training in real options concepts needs to be more intensive to overcome inconsistency with intuitive judgment, and when the outputs of formal real options valuation are likely to be unintuitive and thus not readily acceptable to managers with limited option theory training.

An empirical investigation of the metrics alignment process

Purpose – To understand the use of metrics to attain alignment between the needs of the customer, strategic objectives, and the execution system. This paper examines the process by which metrics at the various levels are developed and the factors affecting this process.Design/methodology/approach – The paper draws on a series of “deep” case studies and 45 interviews of key managers at various levels within three related businesses. Open and axial coding on the data was performed and themes reported.Findings – The findings show how metrics can generate two types of synergy, financial, and strategic and that numerous factors affect metrics deployment and alignment. There also exists a tension between those metrics that encourage sales growth through innovation and market development (i.e. the so‐called top line metrics) and those metrics that reduce costs or asset investments (i.e. bottom line metrics).Research limitations/implications – Selective coding of the data to develop theoretical insight has yet to...

Additional Information in Accounting Reports: Effects on Management Decisions and Subjective Performance Evaluations Under Causal Ambiguity

Organizations have often been criticized for reliance on a single item of accounting information (e.g., profit) in evaluating performance, because of its incompleteness. We provide theory-based experimental evidence that under frequently occurring performance-evaluation conditions (subjective performance evaluation, causal ambiguity, and individual differences in cognitive ability, knowledge, and/or motivation that lead to different interpretations of information), reliance on a single item of accounting information (profit), rather than profit plus additional (e.g., nonfinancial or external) information, can provide two potential benefits which offset the costs of information incompleteness. First, subordinates are more likely to make the management decisions that superiors will evaluate and reward highly—that is, there are fewer coordination failures in management decisions. Second, even after controlling for the presence or absence of coordination failures, subordinates experience less negative surprise about their performance evaluations.

Historical Theorizing in Management Accounting Research

Abstract This chapter provides a brief introduction to theoretical debates in historical research and their relevance to management accounting studies. It focuses particularly on the role of narrative versus analysis in historical writing and on the interpretation of historical evidence. Using studies of the development of modern management accounting as examples, it shows how standard historical critiques can be applied to diverse explanations of the purposes and effects of management accounting.