Effect of Mental Accounting on Corporate Profitability

Abstract

This paper focuses on the impact of mental accounting on the performance of corporate organizations, using selected corporate entities in Owerri metropolis. The core objective of the study centres on the extent to which the components of mental accounting (including transaction utility, categorization process, and choice bracketing) affect the profitability of corporate entities. The survey research design approach was employed in generating data using structured questionnaire, while the Statistical Package for Social Sciences (SPSS) was employed in testing the formulated hypotheses at 5% level of significance. The reliability of the instrument was measured using cronbach test, and a coefficient reliability of 95.6% was obtained. It was found that no significant relationship exists between transaction utility (TU), choice bracketing (CB), and corporate profitability, while a significant relationship exists between categorization process (CP) and corporate profitability. Furthermore, the F-test shows that all the three components of mental accounting jointly affect corporate profitability significantly the recommendation therefore follows that every economic transaction ought to be ideally classified in the books of accounts irrespective of the perception or mentality of the person/organization involved in the transaction. Again, costbenefit analysis is indispensable amid mental accounting practices to ensure that risks are adequately matched against associated returns.

Keywords: Mental Accounting, Transaction Utility, Categorization Process, Choice Bracketing, Mental perception