ACCT 665 (Research I)
Purpose:
This course is the first doctoral seminar in accounting and introduces the concept of the Scientific Method and the relationship to research, while focusing on research methods used in accounting. This includes the characteristics of the Scientific Method, theory, statistical techniques, expected format used for dissertations and paper submissions, and an overview of landmark studies and current trends in the major areas of accounting research. Based on this background, an appropriate research report will be required.
Class Outline, Fall 2006
Research Paper
Calendar
Old Midterm Exams
Old Final Exams
Articles for Class
Article Summary Forms
Faculty Working Papers
Structure:
1. Introduction: What is Research? What is
accounting research? Setting goals and objectives.
2. The research process: Research in any field involves the
Scientific Method
3. Data and statistical methods: Data gathering, application of
statistics and using stat packages
4. The writing process: Develop a format and style to communicate
effectively
5. Research topics in accounting: Eclectic approach on many areas of
research; the major focus will be discussions led by prominent researchers in
the department
6. Research Report: Written project required
What is Accounting Research?
Research follows the scientific method; that it, adding
knowledge based on theory construction and theory verification.
Most accounting research is empirical, using theory from economics, psychology,
sociology or other areas.
Research can be categorized by function areas, such as financial, managerial,
information systems, auditing, governmental, tax, international & so on.
Or research can be categorized by method, such as capital markets, behavioral,
or experimental.
Characteristics according to Ijiri: Novelty, defensibility & availability.
The Scientific Method:
The systematic, controlled empirical investigation of a set of hypotheses derived from a theoretical structure.
Theory Construction: research question & hypotheses
Theory Verification:
Experimental design
Test
Interpretation (findings)
Evaluation
Scientific
Method 1
Scientific
Method 2
Science: The ideal scientist thinks like a poet and works like a bookkeeper [Wilson, Consilience, p. 57]
Science is the organized, systematic enterprise that gathers knowledge about the world and condenses the knowledge into testable hypotheses.
Science has five significant features: 1.
respectability; 2. economy; 3. measurability; 4. heuristics; & 5. consilience
[
Theory: conceptual framework that explains existing observations & predicts new ones.
Qualities of Theory: 1. parsimony; 2. generality; 3. consilience; & 4. predictiveness [Wilson, Consilience]
Hypothesis: a working assumption.
The Research Process & Philosophy of Science
Thomas Kuhn & Others
Philosophy of
Science-Wikipedia
Data:
WRDS
1983 Database (large city data)
Writing:
Economics/Finance Sites:
Finance Library
On-line Sources
J-store (academic journals)
TAMU Library Catalog
Lexis/Nexis
Definition of Terms
Positive theory (empirically based): seeks to explain observed phenomena by searching for reasons why they occur (explain & predict).
Agency theory: based on contractual relationships. Contract has a principal & agent. The principal will attempt to maximize wealth & contract to avoid conflicts. [See contracting costs under transaction cost economics.]
Efficient contracting: writing contracts to accomplish something (e.g., based on bounded rationality) with minimum transaction & agency costs.
Accounting choice (usually a financial focus): management choices to optimize behavior, using techniques such as:
1. Select alternative methods & level of disclosure
2. Lobbying (e.g., proposed standards)
3. Financial, production & investment activities
Note relationship to earnings management (old—income smoothing).
Transaction cost economics (Williamson): focus on the transaction as the basic unit of analysis (goods & services transferred across a technologically separate interface). Seeks to harmonize exchange relationships (e.g., optimize transactions). Firms are characterized as production functions. Markets are signaling devices.
What are transaction costs (contracting costs)?
1. ex ante: drafting, negotiating, & safeguarding a contract—importance of correct alignment (incentives).
2. ex post: misalignments, cost of governance structures, agency costs
Agency costs:
1. Information asymmetries—limited or misinformed information by one side
2. Adverse selection—market for lemons
3. Moral hazard—shirking, etc.
How to reduce agency costs:
1. Better acquisition decisions
2. Monitoring—including audits and financial reporting
3. Align preferences of agents with principals (e.g., debt covenants, management compensation)
4. Control devices—budgeting, etc.
Rationality: bounded rationality (semi-strong form)—people intendedly rational by limited
Self interest behavior:
1. Obedience
2. Simple self-interest
3. Opportunism (self interest with guile)
Efficient Markets Hypothesis (EMH2): information is impounded immediately in an unbiased fashion.
Weak form: based on past prices
Semi-strong form: based on all publicly available information
Strong form: based on all information
Portfolio theory: developed by Harry Markowitz, the idea that diversifying a portfolio to maximize return for some level of risk; that is, focusing on the tradeoff between return & risk, relative to concentration/diversification.
Capital Asset Pricing Model (CAPM): E(Rit) = Rrt + b[E(Rmt) - Rrt]
where R is rate of return
m is market rate of return
i is individual firm
r is risk free rate of return
t is time period
Market model: rit = aI + bI rmt + eit
b is systematic risk: s(Rit , Rmt)
s (Rmt)
Martingale process: E (Xt) = fXt-1 + d
Random walk: E (Xt) = Xt-1
Other Internet Sites:
Start with my Resource
Links
www.rutgers.edu/accounting/raw/internet/internet.htm
www.cnnfn.com
www.sec.gov
www.stat-usa.gov/
See My History Page