A Look on the Bright Side – The Real Effect of Mood on Corporate Short-Term Resource Adjustment Decisions: Research Note

Abstract

Purpose – Over the last 15 years, research provided insight into several firm- and country-level determinants of asymmetric cost behavior. Their implicit premise builds on rational trade-off decisions between holding costs of idle resources and adjustment costs. The authors build upon these findings and establish an irrational component – sunlight-induced managerial mood.

Methodology/approach – The authors rely on the established cross-sectional model of asymmetric cost behavior to investigate short-term resource adjustment decisions and extend it by an exogenous proxy for managerial mood (i.e., daily sunshine hours per US county-year).

Findings – Beyond rational trade-off and planning decisions, the authors provide large-sample evidence on the influence of irrational mood on cost decisions. In accordance with research in psychology showing that higher serotine levels, attributable to sunlight, contribute to happiness and optimism, the results suggest that sunlight-induced mood increases the level of asymmetric cost behavior. Managers from firms headquartered in counties with a higher level of sunlight less likely react to a decrease in sales by reducing idle resources. Instead, they seem to be more optimistic about future demand conditions and, thus, more inclined to “sit out” downturns in firm activity until sales recover.

Research limitations/implications – Although the mood proxy is truly exogenous in the setting, the authors are unable to establish causality as the actual cost management decisions could not be observed directly. Moreover, the analyses are limited to the county level, whereas weather undoubtedly oftentimes exhibits intra-county variation.

Originality/value – This study is the first to establish an irrational antecedent of managerial resource adjustment decisions, which adds to the cost stickiness literature by demonstrating the important role of deliberate managerial decisions for corporate cost behavior.

Citation

Loy, T.R. and Hartlieb, S. (2020), "A Look on the Bright Side – The Real Effect of Mood on Corporate Short-Term Resource Adjustment Decisions: Research Note", Burney, L.L. (Ed.) Advances in Management Accounting (Advances in Management Accounting, Vol. 32), Emerald Publishing Limited, Leeds, pp. 101-115. https://doi.org/10.1108/S1474-787120200000032004