Modeling the Affectability of Managers' Decisions from Cognitive Biases Based on Accounting and Economic Variables: A System Dynamics Approach

Objective: This study aims to provide a dynamic model based on accounting and economic variables, considering the affectability of managers' decisions from cognitive biases. The neglected point in accounting studies is investigating the amplifying or alleviating effect of managers’ cognitive bi...

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Autores principales:	Shokrollah Khajavi, Vahid AlizadehTalatapeh
Formato:	article
Lenguaje:	FA
Publicado:	University of Tehran 2021
Materias:	system dynamics decision making cognitive bias Accounting. Bookkeeping HF5601-5689 Finance HG1-9999
Acceso en línea:	https://doaj.org/article/49902aa48ebd458ba6fcaa3fc85430cc
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spelling	oai:doaj.org-article:49902aa48ebd458ba6fcaa3fc85430cc2021-11-14T05:27:56ZModeling the Affectability of Managers' Decisions from Cognitive Biases Based on Accounting and Economic Variables: A System Dynamics Approach2645-80202645-803910.22059/acctgrev.2021.312630.1008457https://doaj.org/article/49902aa48ebd458ba6fcaa3fc85430cc2021-05-01T00:00:00Zhttps://acctgrev.ut.ac.ir/article_81737_90f12869594720a0e947eb886938e679.pdfhttps://doaj.org/toc/2645-8020https://doaj.org/toc/2645-8039Objective: This study aims to provide a dynamic model based on accounting and economic variables, considering the affectability of managers' decisions from cognitive biases. The neglected point in accounting studies is investigating the amplifying or alleviating effect of managers’ cognitive biases on the extent of affectability of companies from uncertainty in the business environment, which shows the necessity of this research. Methods: System dynamics approach has been used to model and study the interaction between components based on the information of companies listed in the Tehran Stock Exchange in a period of 9 years from 2011 to 2019. For simulation horizon, 15 years from 2011 to 2026 have been considered. Results: The uncertainty caused by higher inflation reduces the overinvestment of managers, while the projection bias reduces this negative effect. Although rising inflation also increases the tendency of loss aversion managers to receive loan, the difference between such managers is that they consider external financing when the weighted average cost of capital due to reliance on internal financing has gone up. Another result of this study was that managers with overconfidence bias underestimate the cost of internal resources, and based on inherent risk aversion, they reduce the portion of external financing risk to use it as an investment. Conclusion: The decision making model of managers is influenced by cognitive biases and these deviations shape the behavior of managers in the face of environmental and exogenousfactors. Managers limit their investments and capital expenditure policies due to the condition of the country's economic environment. However, due to behavioral biases affecting their economic decision-making pattern, the overall performance of companies weakened and in fact, these companies lose their opportunities to value making and wealth creation.Shokrollah KhajaviVahid AlizadehTalatapeh University of Tehranarticlesystem dynamicsdecision makingcognitive biasAccounting. BookkeepingHF5601-5689FinanceHG1-9999FAبررسی‌های حسابداری و حسابرسی, Vol 28, Iss 1, Pp 54-79 (2021)
institution	DOAJ
collection	DOAJ
language	FA
topic	system dynamics decision making cognitive bias Accounting. Bookkeeping HF5601-5689 Finance HG1-9999
spellingShingle	system dynamics decision making cognitive bias Accounting. Bookkeeping HF5601-5689 Finance HG1-9999 Shokrollah Khajavi Vahid AlizadehTalatapeh Modeling the Affectability of Managers' Decisions from Cognitive Biases Based on Accounting and Economic Variables: A System Dynamics Approach
description	Objective: This study aims to provide a dynamic model based on accounting and economic variables, considering the affectability of managers' decisions from cognitive biases. The neglected point in accounting studies is investigating the amplifying or alleviating effect of managers’ cognitive biases on the extent of affectability of companies from uncertainty in the business environment, which shows the necessity of this research. Methods: System dynamics approach has been used to model and study the interaction between components based on the information of companies listed in the Tehran Stock Exchange in a period of 9 years from 2011 to 2019. For simulation horizon, 15 years from 2011 to 2026 have been considered. Results: The uncertainty caused by higher inflation reduces the overinvestment of managers, while the projection bias reduces this negative effect. Although rising inflation also increases the tendency of loss aversion managers to receive loan, the difference between such managers is that they consider external financing when the weighted average cost of capital due to reliance on internal financing has gone up. Another result of this study was that managers with overconfidence bias underestimate the cost of internal resources, and based on inherent risk aversion, they reduce the portion of external financing risk to use it as an investment. Conclusion: The decision making model of managers is influenced by cognitive biases and these deviations shape the behavior of managers in the face of environmental and exogenousfactors. Managers limit their investments and capital expenditure policies due to the condition of the country's economic environment. However, due to behavioral biases affecting their economic decision-making pattern, the overall performance of companies weakened and in fact, these companies lose their opportunities to value making and wealth creation.
format	article
author	Shokrollah Khajavi Vahid AlizadehTalatapeh
author_facet	Shokrollah Khajavi Vahid AlizadehTalatapeh
author_sort	Shokrollah Khajavi
title	Modeling the Affectability of Managers' Decisions from Cognitive Biases Based on Accounting and Economic Variables: A System Dynamics Approach
title_short	Modeling the Affectability of Managers' Decisions from Cognitive Biases Based on Accounting and Economic Variables: A System Dynamics Approach
title_full	Modeling the Affectability of Managers' Decisions from Cognitive Biases Based on Accounting and Economic Variables: A System Dynamics Approach
title_fullStr	Modeling the Affectability of Managers' Decisions from Cognitive Biases Based on Accounting and Economic Variables: A System Dynamics Approach
title_full_unstemmed	Modeling the Affectability of Managers' Decisions from Cognitive Biases Based on Accounting and Economic Variables: A System Dynamics Approach
title_sort	modeling the affectability of managers' decisions from cognitive biases based on accounting and economic variables: a system dynamics approach
publisher	University of Tehran
publishDate	2021
url	https://doaj.org/article/49902aa48ebd458ba6fcaa3fc85430cc
work_keys_str_mv	AT shokrollahkhajavi modelingtheaffectabilityofmanagersdecisionsfromcognitivebiasesbasedonaccountingandeconomicvariablesasystemdynamicsapproach AT vahidalizadehtalatapeh modelingtheaffectabilityofmanagersdecisionsfromcognitivebiasesbasedonaccountingandeconomicvariablesasystemdynamicsapproach
_version_	1718429893706907648

Modeling the Affectability of Managers' Decisions from Cognitive Biases Based on Accounting and Economic Variables: A System Dynamics Approach

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