Abstract:

Archival accounting research documents a robust association between misreporting and
suboptimal firm performance, proposing an economics-based cause for this effect. Drawing on
research in psychology, we develop and test theory that supports a behavioral mechanism that
could also explain this effect. Specifically, we predict and find that engaging in misreporting leads
to inferior cognitive performance relative to accurate reporting, which likely impacts the quality
of firms’ operating decisions. We also predict, but do not find, that this effect is stronger when
misreporters anticipate the immediate scrutiny of their report, as compared to when misreporters
have just provided their misreport. Unexpectedly, we find that misreporting negatively impacts
cognitive performance both immediately prior and subsequent to misreporting. This could suggest
that the anticipation of misreporting increases cognitive load prior to reporting and this effect
persists some time into the future. Our study complements prior archival research on misreporting
by developing theory and providing strong causal evidence supporting an additional behaviorallybased
explanation for the association between misreporting and suboptimal firm performance.

General information:

Attendance to this seminar is possible by invitation only. Please send an e-mail to secbs-abs@uva.nl if your are interested in attending this seminar.