Emotions and managerial judgement : Evidence from sunshine exposure

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Author(s)

  • Chen Chen
  • Yangyang Chen
  • Jeffrey A. Pittman
  • Edward J. Podolski
  • Madhu Veeraraghavan

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)179-203
Journal / PublicationThe Accounting Review
Volume97
Issue number3
Publication statusPublished - May 2022

Abstract

We examine the role and economic consequences of emotions in shaping the judgment of corporate executives. Analyzing a large sample of U.S. public firms, we find that sunshine-induced good mood leads managers to make upwardly biased earnings forecasts. Importantly, our evidence implies that managers become less susceptible to the sunshine priming effect in unambiguous settings, when their forecasts are subject to stricter external monitoring, and when they have stronger incentives to issue accurate forecasts. Additional tests show that equity market participants discern less informative signals from forecasts influenced by sunshine and that managers prone to the sunshine priming effect impose costs on their firms in the form of higher information risk and equity financing costs. Reflecting that labor markets also play a disciplinary role, we find that mood-prone managers suffer adverse career outcomes. We provide the first large-scale analysis on the nuanced ways in which emotions affect top executives.

Citation Format(s)

Emotions and managerial judgement: Evidence from sunshine exposure. / Chen, Chen; Chen, Yangyang; Pittman, Jeffrey A. et al.
In: The Accounting Review, Vol. 97, No. 3, 05.2022, p. 179-203.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review