[The American Institute of Certified Public Accountants (AICPA) and its affiliated state societies promote restrictive accountancy laws that limit both the right to express opinions on financial statements and the use of certain occupational titles to licensed public accountants. Although occupational licensing, like other forms of government regulation, is justified as being in the "public interest," critics (e.g., Stigler 1971; Peltzman 1976) suggest that licensing arises because of the professional groups' interest in using the coercive power of government for their own economic advantage. Until 1979, CPAs were content to limit state regulation to the audit function, permitting unlicensed accountants to perform other accounting tasks. With the growing importance of review and compilation services, however, CPAs have sought to restrict the performance of these services too. In addition, the AICPA and state CPA societies have used their influence with state legislatures and licensing boards to impose limitations on the use of professional titles such as "public accountant," "accountant," and "auditor." Whereas some states have adopted relatively permissive licensing laws, others restrict all analytical work and professional titles to licensees. This study explains why some states have adopted more restrictive licensing regimes than others. Hypotheses are developed to test the power of interest groups, political systems, and socioeconomic variables in explaining such differences. The evidence, based on both univariate and multivariate techniques, supports the following general conclusions. Restrictive licensing regimes are more likely in states where the interest-group strength of CPAs is high, as measured by their numbers relative to public accountants who are not CPAs. Restrictiveness is inversely related to statewide competition between Republicans and Democrats and is slightly related to legislative turnover.]

Explains why some states in the United States have adopted relatively permissive licensing laws for public accountants. Use of hypotheses to test the power of interest groups, political systems and socioeconomic variables in explaining differences in licensing requirements; Role of the American Institute of Certified Public Accountants.

The economic theory of regulation suggests that occupational licensing laws are enacted and administered to advance the interests of licensed practitioners. For example, grading standards on licensing examinations could be altered to protect incumbent practitioners from new competitors. This possibility is investigated with time series data of Uniform CPA Examination results for California and Illinois. The results indicate that when the exam was graded by the individual states, exam failure rates increased with downturns in economic activity (as measured by unemployment rates). However, the evidence shows no statistical relation between failure rates and economic activity in the years after each of the states adopted the AICPA's Advisory Grading Service.

[The economic theory of regulation suggests that occupational licensing laws are enacted and administered to advance the interests of licensed practitioners. For example, grading standards on licensing examinations could be altered to protect incumbent practitioners from new competitors. This possibility is investigated with time series data of Uniform CPA Examination results for California and Illinois. The results indicate that when the exam was graded by the individual states, exam failure rates increased with downturns in economic activity (as measured by unemployment rates). However, the evidence shows no statistical relation between failure rates and economic activity in the years after each of the states adopted the AICPA's Advisory Grading Service.]

Reviews the book 'Positive Accounting Theory,' by Ross L. Watts and Jerold L. Zimmerman.

Firms are redesigning operations to reduce slack and waste and improve performance (Hoerr 1989; Safizadeh 1991; Walton 1987) and this often involves reorganizing production workers into workgroups to foster cooperation and group participation in setting standards (Hayes et al. 1988; Schonberger 1986). In addition to employing incentive schemes linked to meeting standards, many firms are using bonuses tied to relative performance among groups to develop a spirit of intergroup competition. Over the past two years, we made several visits to three Fortune 500 manufacturing firms involved in such changes. The site visits suggested several hypotheses that merited further investigation. Thus, we designed a laboratory experiment to study more systematically what we had observed in the field. This study extends previous research on determinants of slack and performance (e.g.. Chow 1983; Chow et al. 1988; Waller and Chow 1985; Young 1985) by: (1) incorporating our observations and the literature on intragroup cooperation and competitive feedback to develop hypotheses, (2) studying workgroups rather than individuals, and (3) using a multiperiod rather than single-period setting. Results of the experiment show that the type of competitive feedback received by groups affected both their output and slack. Interestingly, when individuals were allowed to cooperate rather than work In isolation, performance actually declined. This latter result was unexpected and was likely the consequence of the particular experimental task.

[Firms are redesigning operations to reduce slack and waste and improve performance (Hoerr 1989; Safizadeh 1991; Walton 1987) and this often involves reorganizing production workers into workgroups to foster cooperation and group participation in setting standards (Hayes et al. 1988; Schonberger 1986). In addition to employing incentive schemes linked to meeting standards, many firms are using bonuses tied to relative performance among groups to develop a spirit of intergroup competition. Over the past two years, we made several visits to three Fortune 500 manufacturing firms involved in such changes.1 The site visits suggested several hypotheses that merited further investigation. Thus, we designed a laboratory experiment to study more systematically what we had observed in the field. This study extends previous research on determinants of slack and performance (e.g., Chow 1983; Chow et al. 1988; Waller and Chow 1985; Young 1985) by: (1) incorporating our observations and the literature on intragroup cooperation and competitive feedback to develop hypotheses, (2) studying workgroups rather than individuals, and (3) using a multi-period rather than single-period setting. Results of the experiment show that the type of competitive feedback received by groups affected both their output and slack. Interestingly, when individuals were allowed to cooperate rather than work in isolation, performance actually declined. This latter result was unexpected and was likely the consequence of the particular experimental task.]

This study addresses the two-way process in which a subordinate and a superior engage in influence activities (bottom-up) and favoritism (top-down) in subjective Performance Evaluation. The research context is the Chinese government's evaluation of Chinese state-owned enterprises (SOEs) by the State-Owned Assets Supervision and Administration Commission of China (SASAC). We analyze archival records of the government's evaluation scores, score adjustments, and evaluation ratings given to 63 SOEs between 2005 and 2007. These analyses are also interpreted based on insights gained from in-depth field interviews with SASAC officials and chief financial officers (CFOs) of SOEs. Results indicate that the political connection of SOE CFOs, the geographic proximity of SOE headquarters to the SASAC central office, and political rank of the firm affect the SASAC's evaluations. Data Availability: Data used in this study cannot be made public due to a confidentiality agreement.

This study investigates how adopting new performance measures affects the decision process through which supervisors make subjective adjustments. In our setting, the Chinese government substituted economic value added (EVA) for return on equity (ROE) in the performance score formula it uses to evaluate State-Owned Enterprises (SOEs). In accordance with the Chinese government's objective to increase the capital efficiency of SOEs, supervisors shifted the weight in subjective adjustment decisions from ROE to EVA after EVA adoption. Consistent with EVA adoption creating fairness concerns, however, supervisors did not penalize SOEs for performing poorly on EVA when they performed well on ROE, and accomplished this by shifting the weight from EVA back to ROE. Additional analyses suggest that personal preferences motivated supervisors to make these lenient subjective adjustments. Overall, our findings indicate that adopting new performance measures creates fairness concerns that motivate supervisors to consider their personal preferences in subjective adjustment decisions.

Using a comprehensive database of U.S. internal auditor job postings, we find that firms are about 10 percent more likely to post an internal auditor job after the revelation of accounting and operational failures. Also, the demand for internal auditors is stronger when a failure is more severe. Among firms posting internal auditor jobs, firms demand higher-quality internal auditors in response to a failure compared with when there has not been a recent failure. We find evidence of internal audit demand spillovers through connected directors, which helps mitigate concerns that the primary results are due to replacing internal auditors that recently left or due to endogenous links between hiring internal auditors and failure revelations. Overall, our evidence suggests that firms demand internal auditors to help ensure high-quality financial reporting and effective operations.