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Variance Reporting, Belief Revision, and Profitability

Robert A. Leitch

Michael Majerczyk

Yu Tian

Advances in Accounting Behavioral Research

ISBN: 978-1-78441-636-2, eISBN: 978-1-78441-635-5

Publication date: 1 October 2015

Abstract

Attribution bias can be costly to firms because it hinders decision makers’ ability to infer the real cause of prior events and take corrective action to improve future performance. This study extends prior research by examining whether and how the presence of variance reporting from accounting systems affects firm profitability through a labor cost management decision that is highly susceptible to attribution bias. Our results support the prediction that the presence of variance reporting (process feedback) increases the likelihood of belief revision and corrective action related to the systematic error, and thus increases overall profitability for the firm. The findings of our study propose a solution to attribution and learning problems observed when decision makers are responsible for both cost management and bids as documented in prior literature.

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Acknowledgements

Acknowledgments

We gratefully acknowledge the constructive and helpful comments from the editor, Donna Bobek Schmitt, two anonymous reviewers, and workshop participants at the University of South Carolina for their comments on an early draft of this chapter. We also thank Erin Hamilton and Charles Boster for their help with our data collection.

Citation

Leitch, R.A., Majerczyk, M. and Tian, Y. (2015), "Variance Reporting, Belief Revision, and Profitability", Advances in Accounting Behavioral Research (Advances in Accounting Behavioural Research, Vol. 18), Emerald Group Publishing Limited, Leeds, pp. 155-178. https://doi.org/10.1108/S1475-148820150000018005

Publisher

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Emerald Group Publishing Limited