Mental Accounting in Managers’ Preferences Related to Aggregation Versus Disaggregation Income Statement Items

Objective – The objective of this study is to observe the mental accounting of managers when choosing between aggregate or disaggregate items in income statements. Managers who experience mental accounting may behave opportunistically because they may consider cost-benefits based on which of the two has a higher utility. Methodology/Technique – This study is experimental in design. It involves 40 accounting graduates who have been working for at least three years in the same company as decision makers in the field of finance and accounting. Findings – The test results of the research experiment using MANOVA Test (Factorial Design) with SPSS 23 found that overall, the managers will support the presentation of aggregate or disaggregate based on which one of the two has a higher utility. Therefore, managers' preferences related to items of gains and losses in the income statement are consistent with mental accounting. Novelty – The outcome of this study could be used to explain how the parties involved in external financial reporting and voluntary disclosure behave in accordance with the principles of the theory of mental accounting. Type of Paper: Empirical