Musings on Accounting Research by Steve

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Our assumptions lead our conclusions

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What we assume about the world can often colour our interpretation of the evidence. That, in my opinion is the fundamental reason we need a diversity of paradigms examining accounting.

For example: I view the macroeconomic world through the lens of a Keynesian not that of a monetarist. Hence, implicitly I agree with the relatively greater emphasis on the role of government in ensuring that our capitalist economy works for all.

If I were a monetarist, then I would see the world quite differently in that I would see government as more of a problem and that freer markets are the best long run solution to keeping our capitalist economy healthy.

Yet most accounting researchers have little understanding of what basic assumptions about how the economic world works that drives their research.

How does that work you say? A monetarist believes in long lasting equilibriums that occur though relatively quick adjustments that are efficiently transmitted by markets. Hence, the assumption of efficient capital markets make intuitive sense to such a person driving their focus to a relatively narrow theoretical base of financial economics. And the way they interpret their research findings.

A Keynesian accepts the proposition that markets may be efficient in the long run but that the long run is too long to wait. Mind you the Keynesian is also much more sympathetic to Adam Smith’s view that capitalism has a tendency to lead to monopolies and that markets need to be structured ( dare I say regulated) so that does not happen ( yeah that Adam Smith – the first philosopher of capitalism – who also said corporations are inherently immoral). Thus, in addition to financial economics, that researcher understands the role of psychology (what Keynes called the “animal spirits ” of markets in his delightful British English), sociology (I.e. “Mobs” according to Keynes) as well as many fields of economic research beyond financial economics. This too affects how they interpret their research findings.

Return latter for this analysis to continue!


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