Financial Accounting Research Research Articles

Who Influences Whom? An Exploratory Analysis of the Interrelations between Accounting Research and the IASB's Standard Setting Activity

This study investigates the interrelations between accounting research and the IASB activity. Prior research shows a significant gap between academia, the standard setters and the accounting profession and underlines the failure of academic papers to contribute to accounting practice. Although we find some evidence of the intention of the IASB to fill the gap between accounting theory and practice, our analysis confirms the existence of a significant distance between financial accounting research and the IFRSs. The IASB ‘due process’ definitely influences the academic activity, but the accounting literature does not seem to represent a cornerstone for the IFRSs. Particularly, during the ‘due process’ steps that precede the P.I.R. phase, the IASB only quotes few papers. With the P.I.R. process, the number of research papers analysed by the IASB significantly increases, but it is not yet clear how this ex-post activity might really influence the IFRSs statements. Finally, we find that the traditional academic ranking systems are not a key factor driving the IASB selection of the articles to analyse during the P.I.R. process. This evidence sheds light on the risk of an unfruitful self-referentiality of the accounting academic literature and on the self-feeding nature of the academic world.

Articulating accounting principles

Purpose – The purpose of this paper is to provide a soundly based epistemological underpinning for the kind of theorisation in which many classical financial accounting researchers engaged and thus to support a renewal of this programme. Design/methodology/approach – The paper draws on pragmatist philosophy and, in particular, on Jules Coleman’s theory of “explanation by embodiment”. The applicability of this theory to the world of financial reporting is discussed. Various theorists and schools within classical accounting theory are examined from the perspective of Coleman’s ideas, focusing particularly on A.C. Littleton’s Structure of Accounting Theory. Findings – The paper finds that classical accounting research works such as Structure of Accounting Theory can be interpreted as the search for Colemanian explanation by embodiment and that this provides them with a soundly based pragmatist underpinning for their theorisation. Research limitations/implications – This paper supports the resumption by academics, qua academics, of work to contribute to accounting standard-setting by offering argumentation that addresses accounting principles and methods directly, rather than only via the social scientific investigation of behaviour in the accounting arena. Practical implications – Such a resumption would contribute positively to future standard-setting. Originality/value – This paper contributes to the defence of classical financial accounting research from the charge of lacking theoretical rigour.

Non-Stationarity and Structural Breaks in Financial Data: Challenges and Opportunities for Financial Accounting Researchers

In empirical financial accounting research, ratios or first differences are usually calculated based on the financial and accounting data provided by the CRSP, Compustat and I/B/E/S datasets. However, in the construction of longer time series, the variables in these datasets present a challenge to researchers. To be able to make valid empirical estimations, variables have to be stationary. If they are not, spurious results may be yielded. When creating separate sets of accounting, finance and analyst variables for the NYSE/AMEX and NASDAQ stock exchanges, we concluded that many popular variables are non-stationary: they have partial unit-roots and systematic structural breaks, mostly around important economic events, such as the 1991-92 recession, the dot.com bubble and the 2008 mortgage-related financial crisis. In this study we present several approaches to locating structural breaks in data. Our objective is twofold: 1) to facilitate researchers in improving the quality of their estimations and inferences, and 2) to better enable them to identify models for handling endogeneity issues.

Relative reliability and the recognisable firm: Calculating goodwill impairment value

This paper complements financial accounting research by a qualitative study of financial accounting practices. Its object is goodwill impairment tests (IAS 36) under the influence of International Financial Reporting Standards, which it uses to illustrate how financial accounting is produced. The aim is to investigate how accounting standards are translated into accounting practices, and to investigate how this is reliable. Drawing on actor network theory, the paper proposes calculative practices to be a networked and distributed affair. The study has two main contributions. Firstly, it shows that in the case of goodwill impairment tests, financial accounting is a process of finding, qualifying, stabilizing and calculating traces that often have to be found beyond the company infrastructure of sheets of accounts and the financial ledger. Secondly, it shows that these traces increase reliability when they are recognisable and impersonal. No single person is responsible for the financial calculation and the traces used assume that a firm cannot systematically outperform the broader economy or the history of the firm. It also helps to increase reliability if institutional roles such as auditors and valuation experts tolerate the calculation. Reliability increase when traces and supporting institutional actors that take part in the calculation are at a distance. Because of this production process, readers of financial statements face the following paradox: the things they see are less associated with specific entrepreneurial activities in the firm and more with normalised trends inside and outside the firm. Seeing the firm requires them to look at its past, at negotiated budgets, at its competitors, at industrial outlook, and at the statistical bureaus that compile information on the economic development of industries and countries; they may also have to listen to valuation experts and auditors. Seeing the value of a firm requires actors to look elsewhere.

Output-Based Measurement of Financial Statement Comparability: A Survey of Empirical Proxies

Financial statement comparability has been the subject of significant interest in empirical financial accounting research. Recent literature, particularly that following De Franco et al.’s (2011) influential study, has focused on utilizing the output of the financial reporting process to measure accounting comparability. In this paper, we conduct an early survey of studies using output-based measures of comparability. We provide two distinct contributions to the literature. First, we describe and comment on four important measurement concepts as well as the studies that introduced them. With this methodological contribution, we aim to facilitate the measurement choice for empirical accounting researchers engaged in comparability research. Second, we classify the sub-streams of literature and related studies. Through this content-related contribution, we sum up what has already been achieved in output-based accounting comparability research and highlight potential areas for prospective research. As a whole, our study attempts to guide empirical researchers who (plan to) undertake studies on financial statement comparability in selecting relevant topics and choosing adequate approaches to measurement.

Financial Accounting Research, Practice, and Financial Accountability

Financial accounting is essential to financial accountability, which is essential to a prosperous society. There are many examples of how improvements to financial accounting, supported by research, have enhanced financial accountability. Such research requires a strong relation between accounting academics and practice; this relation has ebbed and flowed during the life of Abacus. The relation seems to ebb when accounting academics embrace related fields and flows when the relevance to accounting practice emerges. Economics and finance have provided new perspectives and meaningful insights about the information investors need to make informed decisions. Regardless, there are many intriguing and open questions awaiting accounting research that can provide insights into how financial accounting—and thus financial accountability—can be improved. The future is bright for financial accounting researchers who do research relevant to accounting practice and want to contribute to a prosperous society.

Financial Reporting: An Enterprise Operations Perspective

ABSTRACTStudies related to the measurement of accounting numbers have tended to focus on accounting as it relates to: changes in equity values; equity valuation; estimation of the cost of equity capital; and prediction of equity earnings. I propose and justify a perspective for financial accounting research on measurement of accounting numbers that differs from the current generally applied perspective. I argue that important new insights will be gained if research efforts turn toward accounting measurement and valuation at the enterprise/operating/firm level.

Research methods and methodology towards knowledge creation in accounting

Academic and scientific research embodies the purist way to achieve new knowledge through diversified methods and methodologies. It aims to describe and interpret multiple phenomena and their impact on social and organizational developments. Based on 760 postgraduate completed academic researches, in the scientific fields of accounting, auditing, and management control, a set of variables was identified towards an integrated overview of methods and methodology that historically fit with those scientific fields. This paper aims to evidence whether those methods and methodology depend from the scientific field under research and identify their impact on theory construction and for organizations’ development. Research in financial accounting tends to increase the positivist or mainstream approach while management accounting research is characterized by an integrated descriptive or interpretive approach. Furthermore, case studies are used as way of stregthening the linkage and cooperation between higher education institutions, in particular business schools, and external organizations.

Does business model affect accounting choices? An empirical analysis of European listed companies

Financial accounting research increasingly includes business model (BM) constructs, but the ability of financial reporting to capture BM characteristics has not been verified. This study empirically explores the links between BMs and accounting choices by clustering a sample of 103 European listed companies according to an innovative, nonlinear algorithm (self-organizing map) that uses pertinent industrial, strategic, governance, and financial variables to uncover different dimensions of a BM. The authors investigate accounting choices (accounting measurement, accounting treatment, and disclosure level) by companies that belong to the different identified BMs. The analysis of the relations between different company BMs and their accounting choices indicates no significant connections, which offers empirical confirmation of the criticisms regarding the inability of financial reporting to represent (or even consider) a company’s BM. The results suggest further attempt to capture BM in financial reporting, which requires regulators to establish accounting standards that acknowledge the value creation processes of an entity and incentivize managers to represent those processes.

Implications of asymmetric cost behaviour for analysing financial reports of companies in China

Asymmetric cost behaviour analysis emphasises the role of deliberate managerial decisions. In this paper, we find that asymmetric cost behaviour is also a pervasive phenomenon in China. Specifically, SOEs have more cost stickiness than non-SOEs and companies with executive shareholding have more cost stickiness than those without executive shareholding. Secondly, we find that the cost variability and cost stickiness model (separate earnings into cost variability with sales revenue and stickiness in costs with sales declines) provides substantial improvement in forecasting accuracy over other models using only the line items in financial statements. Finally, we find that both conditional conservatism and cost stickiness influence the linear relation between earnings and performance measures. We suggest that future empirical tests on conditional conservatism should control for the potential confounding effect of sticky costs. Our results from Chinese firms provide evidence on the accuracy of earnings forecast and conservatism, and contain important implications for both cost accounting research and financial accounting research.

Mapping and exploring the topography of contemporary financial accounting research

This paper reports on a review of 1055 papers in the financial accounting literature published in eleven leading accounting journals in the period 2002 to 2007 inclusive. In contrast to most prior published literature reviews, which are located within a particular methodology and highly specialised, this is a broad literature review that covers both empirical/quantitative streams and critical/qualitative streams and is an attempt to draw a map of the overall structure and topography of published financial accounting research. The paper analyses a range of information collected from each paper about the authors, content, use of theories and research methods. The conclusions summarise the structure of the literature and give an insight into what journal editors and peer reviewers deem to be a contribution to knowledge in the field of financial accounting. Comments are included on the unique contribution made to the field by those authors within our sample writing and publishing outside the US. The paper is likely to be particularly relevant to new career researchers in financial accounting, PhD students reviewing the literature to locate their own research and academics looking for appropriate research outlets.

An investigation of the short‐ and long‐run relations between executive cash bonus payments and firm financial performance: a pitch

AbstractThis letter is a discussion of the application of the pitch template developed by Faff (2015) to a financial accounting research topic. The pitch template focuses ideas into key areas, giving clear and concise direction in planning and structuring the research idea. In this instance, the template is used in a nonlinear manner to develop a research proposal to investigate the relation between cash bonus payments and firm financial performance.

Judgment and Decision-Making Research in Auditing and Accounting: Future Research Implications of Person, Task, and Environment Perspective

The discipline of accounting and auditing has increasingly recognized judgment and decision making (JDM) as highly important attributes in the profession because individuals such as managers, auditors, financial analysts, accountants, and standard setters make pivotal judgments and decisions. Many studies undertaken in this domain of research also substantiate the significance of JDM in accounting and auditing. This study evaluates all the papers published in 10 accounting journals among the leading ones from 1980 to 2010 that fall within the domain of JDM research. The categorization of the studies reviewed in this paper is based on Bonner's (1999) three major determinants of JDM: Person, Task, and Environment variables. The review highlights the progress in the literature over the past three decades and also identifies the methodological limitations of previous research. The identified limitations will be useful for improving the research method of future JDM studies in accounting and auditing. The review also draws inferences on how JDM research in auditing, which is well established, could usefully guide future JDM research in financial accounting.

COMMENTARY––The Public Interest Imperative in Corporate Sustainability Reporting Research

ABSTRACT The United Nations, federal governments and their agencies, non-governmental organizations (NGOs), shareholder activists, private sector standard setters, and academic researchers, as well as many others, are taking actions to improve corporations' accountability regarding the environmental and social impacts of their operations. These actions have helped propel a rapid increase in voluntary corporate sustainability reporting. Although the uptake in sustainability reporting has received a significant amount of support from relevant and respected organizations, academic and policy debates continue over whether voluntary corporate sustainability reports can monitor corporate activities effectively. While some researchers view these reports as signals of superior actions, others argue that they provide corporations with an opportunity to obfuscate their actual social and environmental performance through selective and incomplete disclosure strategies. The purpose of this commentary is to advocate for accounting researchers, regardless of their theoretical framework, research question, or method, to use a more inclusive definition of the public interest when performing corporate sustainability reporting research. We believe that a more inclusive public interest definition is required due to: (1) the broad impact of corporate social and environmental activities on global climate change and planetary sustainability; (2) a tendency for financial market accounting research to focus strictly on economic-based, potential corporate net benefits or costs derived from voluntary corporate sustainability reporting; and (3) the need to acknowledge the collective action problem inherent in developing policies dealing with corporate sustainable development activities and reporting. By using a more inclusive definition of the public interest in corporate sustainability reporting research, the accounting research community can contribute more positively to society's understanding of how well corporations are meeting and reporting on their significant public interest responsibilities related to the climate change consequences of their operations.

Addressing directions in interdisciplinary accounting research

Purpose – The purpose of this paper is to address and critique the current state and trajectory of the interdisciplinary accounting movement. Design/methodology/approach – An interdisciplinary literature sourced analysis and critique of the movement's positioning and trajectory. Findings – It observes the creeping currency of the financial economics-based accounting research tradition, with its attendant limitations in scope and policy/practice relevance of its subject matter and findings. The paper reveals the persistent growth and development of an interdisciplinary accounting community despite the pressures of careerist research score-based goal displacement produced by government and university performance measurement systems. Originality/value – The interdisciplinary movement is seen as offering issues focused and innovation-driven research that aims to engage with the complexities of the organisational and institutional actors’ worlds. This remit remains essential to the challenge of the accounting academy's pursuit of issues of societal significance.

Analytics in empirical/archival financial accounting research

In this article, we describe various analytics in empirical/archival financial accounting research. We focus the discussion on research questions that are central to accounting research, analytics used to test hypotheses, and evidence. We also describe voice and text analysis, which is generating interesting new datasets and hypothesis tests, offering promising potential for future studies. Our study seeks to (1) inform business professionals about state-of-the-art analytics in accounting research and (2) trigger academics to pursue creative new research opportunities.

Asymmetric Cost Behavior

ABSTRACT We synthesize the growing literature on asymmetric cost behavior—a new way of thinking about costs and, by extension, earnings. While the traditional cost behavior model describes a mechanistic relation between activity and costs, this alternative view recognizes the primitives of cost behavior—resource adjustment costs and managerial decisions. These primitives give rise to “sticky” and “anti-sticky” costs, along with traditional “fixed” and “variable” costs as extreme cases. We formulate an integrated framework of asymmetric cost behavior and review the empirical evidence in support of this framework and its implications for both cost and financial accounting research. We clarify empirical issues and show that recent contrary claims about the validity of findings in the literature are unwarranted because of econometric errors. We present new comprehensive evidence from Global Compustat, which demonstrates that asymmetric cost behavior is a pervasive global phenomenon. We also discuss research opportunities.

The Use of Partial Least Squares Path Modeling in Causal Inference for Archival Financial Accounting Research

In financial accounting research, multivariate regression is almost exclusively the dominant statistical method. By contrast, Partial Least Squares path modeling is a under-utilized statistical method. The aim of this study is to examine how Partial Least Squares path modeling can be applied to the archival financial accounting research. This article first presents an overview on multivariate regression and structural equation modeling. The authors then highlight that advantages of using Partial Least Squares path modeling to address the research constraints in causal inference for archival financial accounting research.

The Effects of Forecasting Approach and Performance-Based Incentives on the Quality of Management Forecasts

Forecasts are vital to every business organization and are key inputs to business decisions such as budgeting, compensation and financial reporting. In this study, we use an abstract experiment to examine how the extent of disaggregation in a management forecast interacts with performance-based incentives to influence the accuracy and bias of management forecasts. We manipulate two factors between subjects at two levels each: forecast type (Disaggregated or Aggregated Forecasts) and performance-based incentives (Presence or Absence of performance-based incentives). Consistent with our predictions, we find that (1) in the absence of performance-based incentives, providing disaggregated forecasts leads to more accurate forecasts than providing aggregated forecasts; while (2) an ordinal interaction between forecast type and performance-based incentives such that providing disaggregated forecasts leads to greater forecast optimism than providing aggregated forecasts in the presence of performance-based incentives, but not in the absence of performance-based incentives. Our study bridges the gap between management accounting and financial accounting research by opening the “black box” of management forecasts and highlighting how internal budgeting and forecasting approaches affect the quality of externally reported forecasts. Our results have important practical implications for managers and investors.

Causal inference in empirical archival financial accounting research

This study discusses the challenges and opportunities of establishing causal inference in empirical archival financial accounting research. Causal inference requires identification of a theoretically predicted causal mechanism in a research setting optimized to avoid endogenous causes and using a suitable statistical inference strategy. After briefly describing potential research design strategies, I analyze the frequency of causal studies published in leading business and economics journals. I identify causal studies by their abstract including an explicit reference to their causal nature and find that they are significantly more common in the areas of economics and finance compared to other business-oriented research disciplines like accounting. Also, the extent to which research designs are optimized for causal inference differs significantly between causal empirical archival studies in the area of financial accounting and finance. I discuss potential reasons for this gap and make some suggestions on how the demand for and supply of well-designed causal studies in the area of empirical archival financial accounting research might be increased.