Abstract ABSTRACT: The development of the compound entry is traced over a period of three and one-half years in the 15th century ledger of Jachomo Badoer, a Venetian merchant, It is the earliest extant example of the compound entry in Venetian bookkeeping.
Abstract ABSTRACT: This study explores the linkages among job standard tightness, type of compensation scheme, and performance. It postulates that job standard tightness and type of compensation scheme affect not only workers' effort, but also their self-selection among employment contracts, and through these, job performance. A laboratory experiment yielded the following results: among subjects with assigned treatments, job standard tightness and type of compensation scheme had significant independent, but insignificant interactive effects on performance. Subjects who were permitted to choose their own compensation schemes (given an assigned job standard) self-selected among these by skill. There was also some indication that being able to select one's own compensation scheme, per se, enhanced performance. If supported by future studies, these results suggest that job standards and compensation schemes may affect performance not just by motivating a given set of employees, but also by affecting the type of employees an organization attracts from the labor market.
Abstract ABSTRACT: This study extends previous research concerning the cross-sectional distributional properties of financial ratios. Deakin [1976] showed that ten of 11 financial ratios analyzed for manufacturing firms were not normally distributed, and that standard transformation techniques also did not result in normality. In the current study, the same 11 financial ratios analyzed by Deakin are examined for the period 1950-1979 for large samples of manufacturing firms. Using standard statistical techniques to identify outliers, it is then shown that the presence of outliers has a tremendous influence on the parameter estimates for the distributions. After deleting outliers, normality or approximate normality was achieved for most of the distributions. Similar results were achieved for industry analyses.
Abstract ABSTRACT: Classification schemes for financial ratios serve to aid understanding of empirical similarity among the ratios and to aid in the selection of critical financial variables for empirical research. Previous researchers, who defined cash flow as net income plus depreciation, found cash flow ratios highly associated with return ratios. In this study, cash flow is computed by adjusting net income for all accruals and deferrals. This more appropriate definition leads to classification schemes in which the cash flow ratios form a factor separate and distinct from the factor of return ratios.
Abstract The market for auditing services is viewed here in terms of the strategic choices made by auditors, owners (clients), and investors. Owners win the confidence of investors by renting the reputations of auditors for accuracy and fairness. Auditors earn a market rate of return on their investment, via the costs of quality audits, in building a reputation among investors. Suggested research topics on the market structure include a study of the auditor's choices between enhancing its reputation among investors and catering to clients. The auditor is also a party to the strategic interaction between an owner and an investor, since the auditor has access to privileged information useful to the investor. Suggested research topics include a study of the optimal fineness of the information reflected in financial reports. Also mentioned briefly is the role of network externalities in the adoption of accounting conventions.
Abstract ABSTRACT: This study shows that the 1933 and 1934 Securities Acts significantly, and unexpectedly, increased firms' required financial disclosure while curtailing their accounting alternatives. These constraints are postulated to have affected the nature of outstanding bondholder-shareholder contracts and the future costs of entering into such contracts. These changes are hypothesized to have affected bondholder and shareholder wealth through shareholder-to-bondholder wealth transfers, modifying firms' investment, financing, and production opportunity sets, reducing shareholder-bondholder contracting costs, and through wealth transfers across firms. Empirical tests were performed on daily stock and bond returns during the deliberation period of each Act. The sample consisted of New York Stock Exchange stocks and bonds, and over-the-counter stocks. The evidence is consistent with the '33 Act having reduced shareholder wealth through interfirm wealth transfers, out-of-pocket compliance costs, and reduced opportunity sets. The evidence weakly suggests that the '33 Act enhanced bondholder wealth. However, this effect does not appear to have been due to a wealth transfer from shareholders. There is no evidence of a significant effect due to the '34 Act.
Abstract The foundations are being put in place for a revolution in the science of organizations. Some major analytical building blocks for the development of a theory of organizations are outlined and discussed in this paper. This development of organization theory will be hastened by increased understanding of the importance of the choice of definitions, tautologies, analytical techniques, and types of evidence. The two literatures of agency theory are briefly discussed in light of these issues. Because accounting is an integral part of the structure of every organization, the development of a theory of organizations will be closely associated with the development of a theory of accounting. This theory will explain why organizations take the form they do, why they behave as they do, and why accounting practices take the form they do. Because such positive theories as these are required for purposeful decision making, their development will provide a better scientific basis for the decisions of managers, standard-setting boards, and government regulatory bodies.
Abstract Three EDP-audit techniques (integrated Test Facility, Test Data, and Generalized Audit Software) and two organizational variables (the level to which the internal auditing department reports and the internal auditor's level of responsibility in reviewing changes in application programs) were employed in two experiments to assess their effects on the judgments made by external auditors in planning audit programs. Each of the two experiments was conducted in a small-group setting where auditors (seniors and managers in CPA firms) made repeated judgments about internal auditing systems having the above-mentioned properties. Analysis of these judgments utilized single and multiple analysis of variance. The findings indicate that: (1) the administrative level to which the head of the internal auditing department reports (a surrogate for independence) was clearly a dominant factor; (2) each of the three EDP-audit techniques was of equal importance in the judgments made, but none was more important than the level of organizational independence of the internal audit staff; (3) intra-judge consistency was very high and was not affected by a small group discussion that simulated the activity that characterizes audit teams; and (4) inter-judge consistency was moderate.
Abstract ABSTRACT: Jensen, Watts and Zimmerman (referred to hereafter, following Jensen [1976], as "the Rochester School of Accounting") have charged that most accounting theories are "unscientific" because they are "normative." They advocate the development of "positive" theories to explain actual accounting practice. The program of the Rochester School raises a number of methodological issues that are addressed in this article. First, it is argued that the Rochester School's criticism of traditional accounting theory is off the mark because of a failure to distinguish between two different levels of phenomena. Second, it is argued that the concept of "positive" theory is based on the misconception (derived from nineteenth-century positivism) that empirical science is concerned solely with the actual, with "what is." Empirical theories, it is shown, are negative in their import; they state what is to be taken as empirically impossible. Third, it is shown that "negative" theories of the sort described in this article are exactly what is needed in predictive, explanatory, and normative reasoning. Finally, it is argued that the standards advocated by the Rochester School for the appraisal of their own theories are so weak that those theories fail to satisfy Popper's [1959] proposal for demarking science from metaphysics.
Abstract ABSTRACT: This paper contains evidence of accounting measurement rules that are negotiated in private corporate lending agreements. The negotiated sets of rules differ from the regulated set of accounting rules (generally accepted accounting principles). Moreover, the differences between regulated and negotiated rules are systematic and consistent with the economic incentives of borrowers and lenders. Private parties in the market for accounting information are able to produce for themselves at least some of the information required for monitoring lending agreements. The evidence and analysis have implications for: 1. The voluntary choice of accounting rules, 2. The superiority of alternative accounting rules, and 3. The demand for a diverse set of accounting rules.