| From the issue dated March 21, 2008 |
Starting in the 1960s, academic research on accounting became methodologically supercharged — far more quantitative and analytical than in previous decades. The results, however, have been paradoxical. The new paradigms have greatly increased our understanding of how financial information affects the decisions of investors as well as managers. At the same time, those models have crowded out other forms of investigation. The result is that professors of accounting have contributed little to the establishment of new practices and standards, have failed to perform a needed role as a watchdog of the profession, and have created a disconnect between their teaching and their research.
Before the 1960s, accounting research was primarily descriptive. Researchers described existing standards and practices and suggested ways in which they could be improved. Their findings were taken seriously by standard-setting boards, CPA's, and corporate officers.
A confluence of developments in the 1960s markedly changed the nature of research — and, as a consequence, its impact on practice. First, computers emerged as a means of collecting and analyzing vast amounts of information, especially stock prices and data drawn from corporate financial statements. Second, academic accountants themselves recognized the limitations of their methodologies. Argument, they realized, was no substitute for empirical evidence. Third, owing to criticism that their research was decidedly second rate because it was insufficiently analytical, business faculties sought academic respectability by employing the methods of disciplines like econometrics, psychology, statistics, and mathematics.
In response to those developments, professors of accounting not only established new journals that were restricted to metric-based research, but they limited existing academic publications to that type of inquiry. The most influential of the new journals was the Journal of Accounting Research, first published in 1963 and sponsored by the University of Chicago Graduate School of Business.
Acknowledging the primacy of the journals, business-school chairmen and deans increasingly confined the rewards of publication exclusively to those publications' contributors. That policy was applied initially at the business schools at private colleges that had the strongest M.B.A. programs. Then ambitious business schools at public institutions followed the lead of the private schools, even when the public schools had strong undergraduate and master's programs in accounting with successful traditions of practice-oriented research.
The unintended consequence has been that interesting and researchable questions in accounting are essentially being ignored. By confining the major thrust in research to phenomena that can be mathematically modeled or derived from electronic databases, academic accountants have failed to advance the profession in ways that are expected of them and of which they are capable.
Academic research has unquestionably broadened the views of standards setters as to the role of accounting information and how it affects the decisions of individual investors as well as the capital markets. Nevertheless, it has had scant influence on the standards themselves.
The research is hamstrung by restrictive and sometimes artificial assumptions. For example, researchers may construct mathematical models of optimum compensation contracts between an owner and a manager. But contrary to all that we know about human behavior, the models typically posit each of the parties to the arrangement as a "rational" economic being — one devoid of motivations other than to maximize pecuniary returns.
Moreover, research is limited to the homogenized content of electronic databases, which tell us, for example, the prices at which shares were traded but give no insight into the decision processes of either the buyers or the sellers. The research is thus unable to capture the essence of the human behavior that is of interest to accountants and standard setters.
Further, accounting researchers usually look backward rather than forward. They examine the impact of a standard only after it has been issued. And once a rule-making authority issues a standard, that authority seldom modifies it. Accounting is probably the only profession in which academic journals will publish empirical studies only if they have statistical validity. Medical journals, for example, routinely report on promising new procedures that have not yet withstood rigorous statistical scrutiny.
Floyd Norris, the chief financial correspondent of The New York Times, titled a 2006 speech to the American Accounting Association "Where Is the Next Abe Briloff?" Abe Briloff is a rare academic accountant. He has devoted his career to examining the financial statements of publicly traded companies and censuring firms that he believes have engaged in abusive accounting practices. Most of his work has been published in Barron's and in several books — almost none in academic journals. An accounting gadfly in the mold of Ralph Nader, he has criticized existing accounting practices in a way that has not only embarrassed the miscreants but has caused the rule-making authorities to issue new and more-rigorous standards. As Norris correctly suggested in his talk, if the academic community had produced more Abe Briloffs, there would have been fewer corporate accounting meltdowns.
The narrow focus of today's research has also resulted in a disconnect between research and teaching. Because of the difficulty of conducting publishable research in certain areas — such as taxation, managerial accounting, government accounting, and auditing — Ph.D. candidates avoid choosing them as specialties. Thus, even though those areas are central to any degree program in accounting, there is a shortage of faculty members sufficiently knowledgeable to teach them.
To be sure, some accounting research, particularly that pertaining to the efficiency of capital markets, has found its way into both the classroom and textbooks — but mainly in select M.B.A. programs and the textbooks used in those courses. There is little evidence that the research has had more than a marginal influence on what is taught in mainstream accounting courses.
What needs to be done? First, and most significantly, journal editors, department chairs, business-school deans, and promotion-and-tenure committees need to rethink the criteria for what constitutes appropriate accounting research. That is not to suggest that they should diminish the importance of the currently accepted modes or that they should lower their standards. But they need to expand the set of research methods to encompass those that, in other disciplines, are respected for their scientific standing. The methods include historical and field studies, policy analysis, surveys, and international comparisons when, as with empirical and analytical research, they otherwise meet the tests of sound scholarship.
Second, chairmen, deans, and promotion and merit-review committees must expand the criteria they use in assessing the research component of faculty performance. They must have the courage to establish criteria for what constitutes meritorious research that are consistent with their own institutions' unique characters and comparative advantages, rather than imitating the norms believed to be used in schools ranked higher in magazine and newspaper polls. In this regard, they must acknowledge that accounting departments, unlike other business disciplines such as finance and marketing, are associated with a well-defined and recognized profession. Accounting faculties, therefore, have a special obligation to conduct research that is of interest and relevance to the profession. The current accounting model was designed mainly for the industrial era, when property, plant, and equipment were companies' major assets. Today, intangibles such as brand values and intellectual capital are of overwhelming importance as assets, yet they are largely absent from company balance sheets. Academics must play a role in reforming the accounting model to fit the new postindustrial environment.
Third, Ph.D. programs must ensure that young accounting researchers are conversant with the fundamental issues that have arisen in the accounting discipline and with a broad range of research methodologies. The accounting literature did not begin in the second half of the 1960s. The books and articles written by accounting scholars from the 1920s through the 1960s can help to frame and put into perspective the questions that researchers are now studying.
For example, W.A. Paton and A.C. Littleton's 1940 monograph, An Introduction to Corporate Accounting Standards, profoundly shaped the debates of the day and greatly influenced how accounting was taught at universities. Today, however, many, if not most, accounting academics are ignorant of that literature. What they know of it is mainly from textbooks, which themselves evince little knowledge of the path-breaking work of earlier years. All of that leads to superficiality in teaching and to research without a connection to the past.
We fervently hope that the research pendulum will soon swing back from the narrow lines of inquiry that dominate today's leading journals to a rediscovery of the richness of what accounting research can be. For that to occur, deans and the current generation of academic accountants must give it a push.
Michael H. Granof is a professor of accounting at the McCombs School of Business at the University of Texas at Austin. Stephen A. Zeff is a professor of accounting at the Jesse H. Jones Graduate School of Management at Rice University.
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