ECONOMIC IMPERIALISM AND THE CRISIS IN FINANCIAL ACCOUNTING RESEARCH

Abstract

This paper explores the processes of economic imperialism to provide insight into the resilience of the positive accounting research program. In the late 1980s, after 20 years, the US financial accounting research program suffered a crisis of confidence due to the lack of strong empirical results and productive applications. This crisis did not lead, however, to meaningful re-examination of the usefulness of positive economic concepts or changes in research practice or orientation. The need for economic imperialism, or application of positive economic theory to new areas, is built into the reputational structure of the mainstream US academic discipline of economics. Furthermore, positive economics and its applied fields, such as financial economics and financial accounting, have adopted a methodology where application validates theory-regardless of success or fit. The application of modern finance theory to pension investment and funding policy illustrates that positive economic applications do not “work” as well as they are supposed to, however, the theories play an ideological role in justifying corporate behavior. One of the ways that financial accounting resolved the crisis of the late 1980s was launching a new wave of positive accounting imperialism into research on historical markets, international markets, and environmental issues. There are serious philosophical problems when disciplines are organized as rigid reputational hierarchies, as in economics, finance, and financial accounting. When lack of empirical results poses no problem to the dominant theory, and communication and innovation necessary to progress are thwarted, the research community becomes dysfunctional. One possible, although difficult, solution is to build alternative academic reputational structures.