Advances in Accounting Behavioral Research

Khondkar E. Karim

• Publisher: Emerald Publishing Limited
• Year: 2017
• Print ISBN: 9781787145283
• eBook ISBN: 9781787149625
• Topic: Business
• Subtopic: Accounting
• Index: Business

Advances in Accounting Behavioral Research publishes high-quality research encompassing all areas of accounting, including financial, auditing, taxation, managerial, and information systems, addressing a broad range of issues that affect the users, preparers, and assurers of accounting information. Further, this research incorporates theory from, and contributes knowledge and understanding to, applied psychology, sociology, management science, and behavioral economics.

ACCOUNTING SYSTEMS’ DESIGN MATTERS: EVALUABILITY AND MODE INFLUENCE ENVIRONMENTAL PERFORMANCE JUDGMENTS

Hank C. Alewine and Dan N. Stone

ABSTRACT

The increasing use of complex, nonfinancial environmental performance measures in managerial decisions motivates consideration of contextual influences that potentially impact managerial judgments in environmental settings. This study extends general evaluability theory (GET: Hsee & Zhang, 2010) to environmental accounting by investigating the combined effects of evaluation mode and incomplete supplemental evaluability information (SEI; e.g., benchmark data) on management decisions. To elaborate, evaluation mode is the display format in which the accounting information system (AIS) provides available information for analysis; e.g., a manager’s or business unit’s performance is assessed either comparatively (i.e., in joint mode) or individually (i.e., in separate mode). GET suggests more decision weight on measures containing SEI in separate mode because that evaluation mode contains less context in which to analyze information. On the other hand, more decision weight should result for measures that do not contain SEI in joint mode because that mode already contains more context for analysis (e.g., comparing multiple performances with each other). To test these predictions, experimental participants (n = 53) evaluated environmental measures for factories with similar environmental performances. To operationalize the information available in many environmental AIS, some, but not all, performance measures contained benchmark data (incomplete SEI); factories were evaluated either jointly or separately. Participants evidenced decision intransitivity; i.e., in separate evaluation mode, factories rated higher when a favorable measure contained SEI, while in joint evaluation mode, factories rated higher when a favorable measure lacked SEI. The results extend previous AIS and management accounting research by investigating contextual influences, and potential systems design elements, in judgments using environmental AIS.

Keywords: Environmental accounting; general evaluability theory; attribute evaluability; evaluation mode; managerial decision making; accounting systems

INTRODUCTION

This paper contributes to accounting information systems (AIS) and managerial accounting behavioral research by investigating contextual influences on management decisions that rely on environmental AIS. Specifically, the influence of information display (i.e., how information is presented to a decision maker) and the task environment (i.e., factors that may impact how tasks are completed) are central concerns of AIS research (e.g., Kelton, Pennington, & Tuttle, 2010; Samuels & Steinbart, 2002). However, research has given limited attention to the linkages of these issues with managerial accounting influences on AIS (Vasarhelyi, 2012). This paper investigates two contextual influences that are likely to be prominent in environmental AIS, which are partially developed by management accountants for use in managerial decision making. These influences, supplemental evaluability information (SEI) availability and evaluation mode may impact how measures are evaluable in decisions, or the extent in which a measure can be successfully cognitively processed and understood in an evaluation. A highly evaluable measure can be more effectively analyzed for decisions compared to less evaluable measures. SEI, such as a measure’s industry benchmark value, provides information that may make a measure more evaluable because of increased context in which to analyze the measure. Evaluation mode refers to an aspect of information presentation within an AIS. It concerns whether an alternative that a manager evaluates is presented in isolation (i.e., separate evaluation) or together with competing alternatives (i.e., joint evaluation; Hsee & Zhang, 2010).

Investigating SEI and evaluation mode is important to accounting research and practice because the data in environmental AIS are increasingly complex and nonfinancial, which increases behavioral concerns in decision analyses and thus necessitates design consideration of the treatment and display of SEI and evaluation mode in the environmental AIS.¹ Environmental accounting settings are of increasing managerial and societal relevance due to efforts to better understand the influence of organizational and human activity on environmental ecologies. For example, accounting for environmental contingent liabilities includes both complex estimates and subjective determination of the liability’s probability of occurrence under US FAS 5 (Hawkins, Manning, & Bryan, 2009). Environmental costs and benefits – encapsulated in accounting data – increasingly influence investment evaluations and other stakeholder discourse about environmental stewardship and responsibility (Clarkson, Li, & Richardson, 2004; Joshi, Krishnan, & Lave, 2001; Simnett, Vanstraelen, & Chua, 2009). The practical goal of behavioral environmental accounting research efforts is to enhance effectiveness in identifying emerging environmental AIS data issues and to consider their implications for alternative designed displays.² The theoretical goal of these efforts is a better understanding of the complex relations among context, information display, data characteristics, and managerial decisions in environmental AIS.

In addition to better understanding the nature of environmental accounting information, exploring the implications of a decision’s evaluation mode may also facilitate the above practical and theoretical goals (cf. Brown, Dillard, & Marshall, 2005; Gray & Bebbington, 2001). Choices that include environmentally sensitive evaluations may, by system design or information availability, include the joint evaluation of alternatives (e.g., a capital investment decision with multiple alternatives that compete to achieve environmental objectives), or isolated separate evaluations of alternatives (e.g., a resource-intense, environmentally sensitive capital investment decision involving a single, unique candidate using scrubber technology; Wang, 2011). Understanding how AIS design elements may influence the cognitive processing of nontraditional, nonfinancial environmental data in different evaluation modes could aid in developing strategic performance measurement systems (cf. Webb, 2004), as well as engineering AIS that better align an organization’s environmental objectives with measures and information displays in the AIS.

This study adapts and extends general evaluability theory (GET: Hsee & Zhang, 2010) to explain managerial decisions that use information from an environmental AIS. One component of GET suggests that, when decision makers compare alternatives in a decision setting, they weight difficult-to-evaluate performance measures more when these measures are analyzed together (i.e., in joint evaluation mode), than when they are analyzed separately (i.e., in separate evaluation model). Therefore, providing SEI for difficult-to-evaluate measures provides contextual knowledge about them, thereby easing their evaluation.³ However, the information available in an environmental AIS may be limited to include only incomplete SEI (Brown et al., 2005; Gray & Bebbington, 2001), resulting in varying levels of measure evaluability for decision-relevant measures. That is, some relevant measures may include SEI while others exclude SEI. Because of this constraint, this study considers an important extension of GET to environmental accounting relevant decisions that may reveal a decision intransitivity, i.e., a bias. Specifically, when comparing alternatives, one alternative may be preferred in one evaluation mode while another alternative is preferred in a different evaluation mode, despite similar performances. Thus, this study investigates whether intransitivities, i.e., decision anomalies based on information displays, arise in an important context for AIS, explores the potential causes of these intransitivities, and, considers their implications for the design and function of environmental AIS in an environmental management context.

To experimentally investigate the above issues, participants (n = 53) were randomly assigned to one of two evaluation modes – joint or separate. Participants evaluated two equally important environmental accounting measures for two factory alternatives; the factories had similar environmental performances (i.e., each of the two measures favored a different factory). To operationalize many practitioner settings involving limited environmental accounting information, only one of the two performance measures contained benchmark data (i.e., incomplete SEI existed). Participants made evaluations on four separate pairs of factories.

Results indicated that a decision bias, called intransitivity, obtained due to the joint effects of evaluation mode and SEI; specifically, participants rated alternatives favored by the measure containing SEI higher in separate evaluation mode, but they rated alternatives favored by the measure without SEI higher in joint evaluation mode. These results suggest the relevance of extending GET to environmental accounting decisions, and, the contingency of these judgments on cognitive considerations from contextual factors such as information (un)availability and AIS information displays.

This manuscript makes multiple contributions to the AIS, managerial accounting, and environmental accounting literatures. This study answers the call for more integration between the AIS and managerial accounting domains, specifically by exploring how entities can better report contemporary accounting information for new and more diverse stakeholders (Vasarhelyi, 2012); the current study’s findings and implications contribute to this exploration. Specifically, the study’s findings of the role of evaluation mode and SEI in environmental accounting settings: (1) aid systems designers and managerial accountants in making more informed disclosure and design choices regarding systems that include nonfinancial environmental accounting information and (2) identify potential decision impediments that are likely to obtain in environmental accounting-relevant decisions that include less evaluable measures.

This paper continues with hypotheses development, reports an experiment and its results, and discusses the manuscript’s contributions, implications, limitations, and possible extensions.

LITERATURE AND HYPOTHESES

Features of Environmental Accounting Information

Despite an increasing cognizance of, and need for, better environmental accounting data, accounting systems often struggle to effectively capture and present decision-relevant environmental information for management analysis (Brown et al., 2005; Dias-Sardinha, Reijnders, & Antunes, 2002; Gray & Bebbington, 2001). Case evidence suggests that integrating environmental accounting data into AIS proves challenging for logistical, organizational, and cultural reasons (Ball, 2005; Dey, 2007; Herbohn, 2005). The deficiencies of ...

Table of contents

• Cover
• Title Page
• Career-Related Benefits and Turnover Intentions in Accounting Firms: The Roles of Career Growth Opportunities, Trust in Superiors, and Organizational Commitment
• Accounting Systems’ Design Matters: Evaluability and Mode Influence Environmental Performance Judgments
• Debt Covenant Violation and Earnings Management: A Neuroscience Approach and Future Directions – A Research Note
• Stress Arousal and Burnout as Mediators of Role Stress in Public Accounting
• Multi-Disclosures in the Context of National Cultures: Evidence from Islamic Banks
• Market-Risk Disclosures: The Initiation and Implementation of a Financial Reporting Innovation
• Index