Knowledge that Transforms

This essay discusses issues related to establishing causal relationships in empirical survey research. I adopt a manipulationist view of causality because it matches the context of (management) accounting research where we are commonly interested in studying the effects of changes. Strictly speaking, causal relationships cannot be unequivocally proven when the researcher employs cross-sectional surveys—that is, correlation is not causation. Notwithstanding, survey research can be fruitfully engaged to inform pertinent management accounting topics. I discuss four “markers” of causality—theoretical coherence, empirical covariation, temporal/physical separation, and internal validity—and how the researcher can lever these to suggest compelling survey-based inferences. Of these four markers, I particularly emphasize the first as I believe that one piece of any reasonable observer’s considerations will be whether the proffered causal relationships are theoretically plausible. Moreover, a stronger theoretical foundation also helps causal inference by suggesting a reasonably complete set of control variables that are useful to eliminate alternative explanations. Overall, I focus rather pragmatically on the limitations of causal inference when using the survey method and what may be done to try and alleviate, although not eliminate, them.

Consistent with the prevailing socio-political ideology of China, the Chinese government offers financial assistance to firms, including many listed companies. Government subsidies are provided for several reasons including support for investment, support to enable firms to pursue social objectives, and support to prop up ailing firms in order to protect jobs. We examine the value relevance of government subsidies for Chinese listed companies and structure our study around three questions. First, whether the subsidies received by Chinese listed companies are value relevant consistent with their time-series properties. Second, whether the value relevance of subsidies depends on the purpose for which they are used. Third, whether the value relevance of subsidies depends on the channel through which they are granted. We motivate these research questions through interviews of accountants, managers, academics, government officials and financial analysts. Through large sample analyses, we confirm that subsidies are positively related to firm value, but less so for distressed firms and subsidies granted through non-tax channels. Our study contributes to improved understanding of Chinese-style capitalism.