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Contemporary Accounting Research Vol. 42 No. 3 2025

Managerial sentiment and short‐term operating decisions: Evidence from terrorist attacks

Xia Chen1; Yanmin Gao2; Rong Huang3; Yangxin Yu4

1 Shenzhen Audencia Financial Technology Institute, Shenzhen University Shenzhen China · 2 Bob Gaglardi School of Business and Economics, Thompson Rivers University Kamloops British Columbia Canada · 3 School of Management Fudan University Shanghai China · 4 Department of Accountancy City University of Hong Kong Hong Kong China

Abstract

Using terrorist attacks and mass shootings as an exogenous source driving psychological changes in managerial sentiment, we explore the causal effect of managerial sentiment on firms' short‐term operating decisions. Employing cost stickiness to measure short‐term operating decisions on resource allocation and cost control, we find that firms located in the attacked metropolitan areas experience a significant decline in the degree of cost stickiness. We further find that the effect is more pronounced for firms that have inexperienced and less confident CEOs, when attack events are more salient, and when managers have lower prior exposure to negative events in their personal experiences. We also explore inventory management as another form of short‐term operating decisions and find that firms exhibit reduced asymmetric inventory management and a lower level of abnormal inventory holdings in postattack periods. Overall, our study suggests that shocks caused by exogenous negative events affect managerial sentiment, which in turn shapes managers' short‐term operating decisions.

DOI
10.1111/1911-3846.13047
Volume
42
Issue
3
Pages
1776-1808
Language
en
Sources
openalex crossref

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