Mental Accounting Biases in Corporate Decision-Making: Evidence from Indian Managers

Abstract

Mental accounting describes the manner in which individuals mentally structure and evaluate financial information by assigning monetary outcomes to separate cognitive categories. Although this behavioural tendency has received considerable attention in studies on individual investors, its relevance in organizational decision-making has not been adequately examined, particularly within emerging market contexts. This study explores the existence and influence of mental accounting biases among Indian managers, with specific reference to budgeting, investment evaluation, and resource allocation decisions. Adopting a quantitative survey-based approach, primary data were gathered from managerial professionals representing diverse sectors in India. Statistical tools such as descriptive analysis, reliability testing, correlation, and regression were employed to examine the association between mental accounting bias and managerial decision-making quality. The results indicate that managers frequently engage in mental compartmentalization of financial decisions, even in the presence of formal controls, resulting in departures from optimal decision outcomes. The study extends behavioural corporate finance literature by contextualizing mental accounting within managerial roles and offers governance-oriented insights for improving decision-making effectiveness.