Musings on Accounting Research by Steve

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Monthly Archives: November 2018

Dear Ross (Michigan Business School)

At this time of the year I get many letters soliciting support for various worthy causes. Most of them I do not respond to as I have a plan for charitable giving based on a sectoral analysis of education, religious, poverty reduction and fine arts/music. (Another example of why I am a true accountant – whose else would plan like that???)

One of the hardest letters to ignore is that from the accounting group at Michigan. Yes I am a proud alumnus of that institution BUT they cut all institutional ties to breadth in accounting research long ago. I was the last Behavioural researcher out the door, way back in 1993! Indeed, from a surface level examination they do nothing but hard core financial empirical research with a little financial economics management accounting research thrown in. Further, their new hires all seem to come from a self-referential group of Chicago, MIT and the like – schools that have no tolerance for diversity in accounting thought.

So folks, I put my money where my mouth is, and until Ross shows more openness to research breadth I continue with the harder path of “just say NO”!!! That’s the way I see it!

Now that we have the neuroscience evidence

Back when I was a lad, the most common refrain heard from financial economics folks in accounting or Auditing was if ” you could see in the brain” that X or Y psychology effect was demonstrated, they would be more willing to accept experimental research in accounting. One would assume that would mean that they would be willing to hire psychology based faculty and support psychology based accounting research.

Well today we have the evidence, and have had it for well over a decade! While the odd psychology based theory has been found to be implausible by cognitive neuroscience research, the overwhelming finding is that those pen and pencil lab based psychology research results have stood the test of “seeing into the brain”.

So, why do we not see accounting areas at Chicago, Wharton, Stanford et al hiring top behavioural accounting researchers and supporting PhD students in those areas???? Hmmm, either they lied when they said brain evidence would convince them or they do not keep up with the research literature that demonstrates it. And these are our American “elite” universities?????

Wither Behavioural and Social Tax research?

One of the enduring mysteries to me is the relative dearth of social and behavioural tax research with an accounting and auditing focus. Is it really the fault of B2 (Bryan and Brian) who in the late 1990’s and early 2000’s were the “stars” of the North American behavioural tax world and have been relatively quiet since?

Yes, I know there are a large number in of what I call ” normal science” behavioural tax researchers that are working hard to turn the dial! But what Social and Behavioural Tax lacks are the intellectual thought leaders at major research schools that help set an agenda for the research area. These also produce the next generation of such researchers and hence this situation if a double threat as the current crop of researchers does not replicate.

Yet I cannot think of an area related to accounting that behavioural and social research would not be so a appropriate for! From decisions about corporate tax evasion, the slippery slope from planning to fraud, to bettering compliance, roles of tax professionals, and more all are potentially in the mix.

Instead from we have is research from behavioural economists, behavioural finance types, sociologists, and generic JDM researchers attempting to investigate an area where they have no domain specific knowledge but can gather the low hanging fruit due to lack of competition. If you do not believe me, use google scholar and search on terms like ” behavioural tax” ” tax experiments” and the like.

So while I applaud the hard work of our corps of hard working behavioural tax researchers we really need young researchers at top schools to consider working in this field. And that’s the way I see it!

The longest year

Many of the PHD students I have mentored over the years seem to be up for promotion and tenure this year. The level of uncertainty surrounding this process seems to be high and the timelines very long. Surely we can come up with a fair system that can run a lot faster. These days at U’s fairness seems to be confused with how many meetings and how long of times processes take.

One of the issues I see is that the bar is so close to being met in many cases but it not clearly crossed. I think this reflects the higher quality of doctoral education that is occurring around the world. Hence, we are seeing more knife-edge cases than ever before.

So far the only safety valve in accounting is that there is still a good secondary market for seasoned assistant professors. Furthermore with the creeping creditentialism more and more institutions require a PHD. And that’s the way it appears to be!

AAA New Faculty Consortium Invite: no doubt lost in mail

Gotta love it! as I predicted last February, the standard two year invite to the American Accounting Association’s New Faculty Consortium would not be extended to me (again I might add)!! One year and your gone, despite outstanding participant reviews both times I have been invited (2011 and 2018). As some of you know the same thing happened when I was CAR editor back in 2010-11 – indeed they cancelled the journal editor’s panel the next year so as to not have to invite me back. See careditorsteve blogs in early 2012 that documents the fun back then!

Why? I tell it like it is, or at least, as I see it. I say nothing that I have not written in these columns, but these columns are seen as a threat by many in the establishment of the AAA and its related Big X funders. I never have figured out exactly what I say that is so threatening? Is it

1. Advocating a big tent for accounting research using all that social sciences have to offer not just the narrow perspectives of financial economics?

2. Recognizing that all PHD grads, hence new faculty, do not have equal chances of success and thus need to think about how they can be successful without buying the elite ” kool-aid” definition of the American 3?

3. Reminding new faculty that our role as educators requires us to develop independent evidence and examine current institutional structures with professional skepticism! Be it the Big X, the PCAOB, the SEC, the IAASB etc. . . . . Society is not served well by a bought and paid for academy.

4. Rolling back the lid on the black box about how the journal editing process works.

My guess is that number 3 is the big one. Indeed last year I warned the NFC Chair that he might want to reconsider my invite! In the end he said to his everlasting credit, that he was ” old enough” that it did not matter if inviting me caused him some problems.  Brave lad, but not often found in the US academy where observation 3 might well be more true than we want to admit.

How to transfer research from audit faculty to standard setters and regulators: The Video version

The following video is based on a simulation study our research team carried out to test the conjectures we made about knowledge transfer from audit research to standard setters (Hoang, Salterio and Sylph Accounting Perspectives, 2018 with an early draft on SSRN), and our analysis of prior attempts at knowledge transfer from academics to standard setters(Salterio, Hoang and Luo, 2018 available at SSRN and featured at the Illinois Audit Symposium on September 28-30, 2018).  The video summarizes part of what we learned during our travels through evidence based policy making and the simulation will be one focus of our next working paper that provides proof of concept that evidence based policy making can inform audit standard setting.

In the mean time enjoy our brave new world of video research presentation – knowledge transfer for a new century!

Video link:  https://www.youtube.com/watch?v=PLePove761E&t=7s

Quantum physics and accounting research

I have been mulling for years over quantum mechanics and it’s direct offshoot quantum physics. The quantum world is pretty mind bending and what’s more it has some interesting implications for social science research if one is willing to make an analogy.

Positivist research can be best explained and understood through classical models like those of Newton in physics. Highly deterministic general laws that are time invariant where once you discover the correct coefficients for the model parameters, know the initial state, one can derive very precise predictions. Furthermore for large non-atomic participles it works well, exceedingly well. The past predicts the future (with measurement error) and the present can be seen to be based on past history (again allowing for measurement error).

However, interpretive research can be seen to analogous to the quantum world. In the quantum world all predictions are probabilistic, any past history could have (or not) occurred ( or indeed all could have occurred in different multiverses), observation of current state of affairs changes the probabilistic outcomes so one can never know the current state and the outcome together as the measuring (or not) of that state affects outcomes. Of course, these phenomena are best seen at the subatomic particle level in the world of quarks, meons et al. And like classical physics it works well, exceedingly well, for is phenomena of interest.

The problem that faces physics, as it faces social science researchers, is that to date it appears both are the best theories for approaching their phenomena of interest. And while lots of work goes on to try reconcile, integrate, combine, metatheorize about, it is not clear yet if any are on the “right” track, if indeed there is such a track.

Something to think about . . . .

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