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Psychological and cognitive research suggest that affective states can have an influence on how people process information and make decisions. Drawing on psychology and accounting research, we argue that mood can influence third party evaluation of capital investment projects by: (i) affecting how external consultants process project information (effort); and (ii) affecting consultants’ susceptibility to arrive at different decisions depending on the presentation sequence of project information. To test these, we designed an experiment adapted from an escalation of commitment context. Results support our hypotheses – consultants in a negative mood spent more effort processing project information during the decision task than those in a positive mood. Also consistent with our hypotheses, we observed an interaction between mood and information presentation sequence such that consultants in a positive mood were more likely to recommend project continuation (escalation) when they viewed a project’s narrative information last and less likely to recommend continuation when they viewed numerical information last. In contrast, we observed no differences in project continuation recommendations by consultants in a negative mood irrespective of information presentation sequence. These results suggest that preparers of capital investment evaluation reports need to consider how mood may affect the way accounting report users process information within a capital investment decision context.
Chang-Yuan Loh, University of Sydney
Mandy Man-sum Cheng, University of New South Wales
Rodney Coyte, The University of Sydney