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SPEAKER 1: Now welcome our first speaker, who's Ryan Guggenmos, who is my colleague in accounting, with a special interest in judgment and decision making. He has been here for four years, came with his PhD from University of Massachusetts, Amherst. And Ryan, the floor is yours. Welcome.
RYAN GUGGENMOS: Thanks, Jan. Thank you for having me. I'm looking forward to giving you a very brief overview of some of the research I do that 10 minutes [INAUDIBLE] for one paper is tough enough. But for a whole stream is a little bit more difficult.
But anyway, so broadly, I'm interested in innovation technology, and accounting and accounting research as you would see from the slide. I think what's interesting to me about that is when I think about innovation, I usually don't quite-- if I'm thinking about the entire organization, the accounting function's usually not the first thing that comes to mind.
But that doesn't mean that there aren't effects on financial reporting. And then on accounting research, that's a interesting segueway to talk a little bit about methods and analysis, which is something that's very important to me. So I think it's good to start out really quickly with a comic, something funny. It's always good to go.
I think this really sums it up. So we have this famous motto from Zuckerberg-- my motto is to move fast and break things. Great idea-- sometimes. Right? And so with innovation and the research that I look at, it's usually not necessarily the good part of innovation that I think is the most interesting.
I think it's the other things that happen in the organization. And I think what's really interesting about the innovation area is how ripe it is for having a really good intended push towards it, and then of lots of opportunity to rationalize what's happened bad on the back end.
One thing I love about XKCD is when you mouse over the comics, you get more-- you get an extra joke for free. And I think this one's really great. I was almost fired from a job driving the hearse in funeral processions, but then the funeral home realized how much business I was creating for them.
And I think that sums up very well what happens in a lot of areas with innovation. We think it's a great idea, there are some unintended consequences, and then we kind of figure out why that was still a good idea. And so the first thing I'll talk about briefly is one from back at UMass Amherst, my dissertation.
So ode to the question, do more innovative corporate cultures lead to greater real earnings management? And so for those of you that aren't familiar with real earnings management, I think it's an interesting phenomenon. It's the times where we take real operations-- things like deferring a maintenance activity or suspending RND, in order to hit a earnings benchmark.
And I think it's an interesting area for a couple of reasons. One, it's not dishonest. The books are right. There's no book cooking going on, but it's an intent issue, for only deferring a long-term value, maximizing activity just to hit a number, it may not be optimal.
And there's some archival literature that shows that, in fact, it is associated with long-term value destroying activities. So if we're pushing towards innovation, there's some research in psychology that says that dishonesty, a lot of times, is associated with creativity and innovation.
But this isn't dishonest, but it's close. And so to get at this, I, being an experimentalist, wanted to go an experimental route. And this is really difficult to see archivally 'cause again, these books are not cooked. These are actual-- they could be really good decisions financially, or they could be situations where we've delayed something that we should have done.
So to do so, I looked at manipulating culture through their company's motto. So I asked all the participants to "think bean." In all conditions, I was about beautiful burgers. This was a restaurant looking at a repairs and maintenance task.
But in the less innovative company, it was elegance, ageless, and nostalgic. And the innovative company was being eccentric, adventurous, and novel. So in that way, I was able to really hold all the economics of the firm constant, but then really attack this question of, what does it mean when these are the things we do day in, day out in the organization?
What I found was that, sure enough, without an intervention, the participants in the more innovative company deferred a lot more of their repairs expense. And in the second half of the study, I looked at ways to mitigate this, using some interventions that were born out of construal level theory.
And it turns out that the lower level construal-based intervention decreased that behavior to some extent, but the higher level construal-based intervention decreased it to a greater extent, as expected. So it was, again, my first foray into this area.
But innovation in financial reporting is something that was interesting to me. But I'm also interested in technology. So the second study I wanted to talk about was one that has to do with something that everyone has about 1,000 times a day-- notifications on your phone.
So in the financial area, the way news has been delivered to investors has changed markedly over the last five or 10 years. And two big things that have happened are one, these notifications, like I said, seem to happen incessantly, and also, this idea that the news content is being more unbundled or ungrouped.
So as the co-author group Shana Clor-Proell-- Cornell alum-- Kristi, Rennekamp, myself, talked about this, we always talk about chunks versus dribbles. Do you get this news article in one big chunk, or do they dribble it out to you over and over and over again? And so we were interested in how the different formats in the push notification of these two users, changed how they thought about financial information.
We were also interested in how this changed across participants. And so we were wondering, are individual differences in people in the way they think about investment content, investing, going to change that effect? So we all know about FOMO, this, "I can't miss out on the social event," "I can't miss out on this other thing."
I-FOMO is a different construct. We actually went through, developed a scale, went through the scale validation process to capture this thing. It's a little bit different. It's not the person who can't miss out on their kid's birthday party. It's the person who, at their kid's birthday, party can't miss out on their fidelity account.
They're always checking-- all the time, all the time. And so what did we see? We saw that for individuals that have lower levels of IFOMO, not much happened. So whether news was grouped or ungrouped, whether it was push notifications or not, nothing much happened.
But with the I-FOMO group, we definitely saw that interaction effect. So high I-FOMO folks, when information was ungrouped, and they were given these push notifications, and that made those [INAUDIBLE] salient to them, they praised the firm higher, or they were willing to invest in the firm.
I think another interesting thing is out of all the groups, the people who thought they were getting the least timely information were these folks. They were the ones who actually thought they were behind in information, even though they were the ones getting the most of it. But they just needed more and more and more and more.
One thing I liked about this study is we were able to look at some of this stuff unobtrusively. So participants were given this virtual iPhone. And they were able to go into this iPhone, interact with it, and we could see things like them going back to the home screen to check for new notifications, even though they weren't there.
And so we saw this type of over-checking behavior in the high I-FOMO group, significantly more than the low I-FOMO group. And last but not least, something that I think that's just a personal passion, I guess. Not a lot of people say this, I think, but is how innovation and design and analysis affect what we learn from our research.
So the other area of research I would look at is in statistical methods. So a couple just really quick blurbs about the studies. So one, I have a study with Dave Piercey and Chris Agoglia at UMass in The Accounting Review about custom contrast testing. It's huge-- hugely used in accounting research.
We found that about 80% of papers in the top six in the last six years use this technique either inappropriately, or in a way that does not allow for you to determine if it was used appropriately or not. And we provide an approach to doing this in a way that controls type one error, and also provides a little bit more power without increasing type one error.
In addition, the paper with co-author UMass as well, that is one of the first uses of Bayesian data analysis, and more of a, say, non-statistician's approach to it, so a very basic way to use it for testing for effects in experiments.
Now, last but not least, I'm working on a paper currently with a bunch of co-authors-- Scott [INAUDIBLE]-- Cornell alum-- Catherine [INAUDIBLE], and a guy named Bob Libby-- on process testing, which also, in accounting, is a huge, huge thing. You see a path model in nearly every paper, whether it should be there or not.
And we're providing some guidelines as to what kind of theories and what kind of theory testing would benefit the most from it, when it's probably not necessary, and when it's just purely supplemental, and provide some best practices and limitations of the different approaches taken with that.
So with that said, I think my time is up. Thank you very much, and open the floor to questions.
[APPLAUSE]
SPEAKER 2: So what is it you're not doing in accounting?
RYAN GUGGENMOS: Anything--
SPEAKER 2: This is a tour of behavioral accounting.
RYAN GUGGENMOS: So I think the areas that I don't do anything at all, with managerial stuff.
SPEAKER 2: If there's a method that you think should be used in accounting that's not being used, what is it? 'Cause you're obviously concerned with bringing in good methods into behavioral accounting.
RYAN GUGGENMOS: So if I were to snap my fingers, we would be much more Bayesian.
SPEAKER 2: Really? Bayesian inference.
RYAN GUGGENMOS: Bayesian influence, yeah.
SPEAKER 2: As models of the thinking process?
RYAN GUGGENMOS: Not usually, but in data analysis.
SPEAKER 2: OK.
RYAN GUGGENMOS: Yes?
SPEAKER 3: I'm just curious a little bit more about individual differences in FOMO. How related is that to other kinds of constructs, like regulatory focus, avoidance, or-- it seems like it would be related. Is it really different?
RYAN GUGGENMOS: Yeah, so what we did, we-- definitely that was a concern of ours. First, to see if it was really just the same thing as FOMO in the first place. But then we also were worried about things like risk avoidance, other big five personality characteristics.
And so we did a fair amount of work to make sure that wasn't the case. We found a correlation with [INAUDIBLE] FOMO of about-- I think was about 30%. They did still load differently with factor analysis. We also gave the scale to people, and looked at risk preferences, the big five personality characteristics.
Then we found different correlations as far as FOMO and I-FOMO with those things. We found no correlation actually with risk preferences in I-FOMO, which was a little bit surprising. It was one of those things that we were hoping to not find. But at the same time, we were worried about it. But it didn't come out.
We also had some other demographics we thought could be driving it-- things like interest in owning stocks, or experience with financial statements. And we ran our analysis using those as the covariate. And the effect isn't there.
And so our last one was actually just conditionally accepted about 10 days ago at The Accounting Review. So our last round was tying up all those types of things.
SPEAKER 3: [INAUDIBLE] do you look at regulatory focus at all?
RYAN GUGGENMOS: Not reg--
SPEAKER 3: [INAUDIBLE].
RYAN GUGGENMOS: No, not regulatory focus. I'm trying to think-- I think for that, because it's an individual investor perspective, I'm not sure I would be cur-- we could talk more. But I'm not sure why that would explain it. But I'm interested to hear your thoughts. Yeah.
SPEAKER 1: Other questions? All right, thanks, Ryan.
RYAN GUGGENMOS: Thank you.
[APPLAUSE]
Ryan Guggenmos, assistant professor of accounting, presents current research findings regarding behavioral economics and human decision-making Sept. 3, 2019 as part of the BEDR Workshop Showcase. Sponsored by the Behavioral Economics and Decision Research Center at Cornell University.
