...POSITIVE ACCOUNTING THEORY, POLITICAL COSTS AND SOCIAL DISCLOSURE ANALYSES: A CRITICAL LOOK Markus J. Milne Accountancy and Business Law University of Otago Dunedin New Zealand Ph: 64-3-479-8120 Fax: 64-3-479-8450 Email: mmilne@commerce.otago.ac.nz POSITIVE ACCOUNTING THEORY, POLITICAL COSTS AND SOCIAL DISCLOSURE ANALYSES: A CRITICAL LOOK* ABSTRACT This paper critically reviews the literature seeking to establish evidence for a positive accounting theory of corporate social disclosures. It carefully traces through the original work of Watts and Zimmerman (1978) showing their concern with the lobbying behaviour of large US oil companies during the 1970s. Such companies were argued to be abusing monopolists and likely targets of selfinterested politicians pursuing wealth transfers in the form of taxes, regulations and other ‘political costs’. Watts and Zimmerman’s reference to “social responsibility” is shown to be a passing remark, and most likely refers to “advocacy advertising”, a widespread practice amongst large US oil companies at that time. Subsequent literature that relies on Watts and Zimmerman to present a case for social disclosures is shown to extend their original arguments. In the process, concern over the “high profits” of companies is shown to diminish, and the notion of political costs is so broadened that it blurs with other social theories of disclosure. Consequently, the positive accounting based social disclosures literature fails to provide distinct...
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...Transaction costs theory and the imperfect markets. Williamson’s successful complementation of the Coases approach of the firm as an alternative to reduce the cost of using the price mechanism, with Herbert Simon’s organizational theory, gave birth to the Transaction Costs Theory (TCT)1. This meant a big step, which evolved the theory of the firm, from its obsolete neoclassical toots and assumptions -of a perfect competitive market and a perfect rationality-, by adding the issues of bounded rationality and opportunism to Coases work2. Williamson opened the path to new ways of conceiving and complementing the theory of the firm in general, and the transactions costs theory in particular. By enabling to the economic theory the enhancing and the building of new connections between cognitive psychology and economics. Connections that have allowed, among other things, the development of a larger view in the roll of the firm, no only as an avoider of costs, but also as a creator of knowledge. All in better accordance with the modern firms logic of making business. In order to understand the transaction costs theory, one has to comprehend that the competitive market structure, is only a reference to be taken into account, when one analyses the observed structure of markets, which are called “imperfect competitive”, For the market is not given under a homogenous form to all economic agents, but is continuously changing under agents decisions and behaviours 3 ....
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...highlight the contributions made to the theory of financial intermediation by Benston and Smith in 1976. Regarding the theory, there is one fundamental question among others, what is the main reason why financial intermediaries exist? In 1976 there was no clear consensus about the specific role of financial intermediaries and many different approaches existed on the issue how to analyze them in an appropriate way. The primary goal of the authors is to develop a proper framework for the analysis by setting the main focus on transaction costs. Therefore, they take a look at four different aspects: the demand for financial commodities, the production, their pricing altogether with the pricing of additional services and the influence of governmental regulation on financial intermediaries. They start their survey from a contrary point as the other authors did in recent history by defining financial intermediaries as firms which create specialized financial commodities. On the supposition that the individuals’ earnings over time do not enable the achievement of the desired inter-temporal consumption pattern, demand for financial commodities arises. In this case assets held by the consumers serve as a possibility to rearrange their intra- and intertemporal consumption pattern for maximizing their utility. This leads to two key facts. First, utility is based on consumption at different points in time and second, transaction costs occur by acquiring financial commodities...
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...Journal of Financial Economics 3 (1976) 305-360. Q North-Holland Publishing Company THEORY OF THE FIRM: MANAGERIAL BEHAVIOR, AGENCY COSTS AND OWNERSHIP STRUCTURE Michael C. JENSEN and William H. MECKLING* University of Rochester, Rochester, NY 14627, U.S.A. Received January 1976, revised version received July 1976 This paper integrates elements from the theory of agency. the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears these costs and why, and investigate the Pareto optirnality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing tht- creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frcqucntly watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give thcmsclvcs a dispensation from...
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...circumstances, but in each instance the objective is to achieve the best use of our assets for the benefit of all the stakeholders. What are Assets? The assets may be natural resources, building structures, land, plant and equipment, heritage and cultural assets, or any other form of infrastructure. It includes physical resources, like roads, telecommunication networks, schools, hospitals and road networks. Financial information and human resources, including intellectual property, are not included in this essay. What is Asset management? “Asset Management is a process of guiding the initiation, acquisition, use and maintenance, and disposal of assets, to make the most of their service delivery potential and manage the related risks and costs over the full life of the assets.” KC Leong, 2004, The Essence of Asset Management. A second definition reads thus: Asset management is the process of creating value within the owner’s objectives through acquisition, use and disposal of assets. Gordon MacNair, 2010. In the second definition the owners objectives is an essential ingredient of the Asset management hence getting it right involves the activation of the organisations strategic objectives. Asset Management from the Private and Public Sector Perspective. Private Perspective: The primary objective and driver is financial, since typically there must be return acceptable return on investment or capital appreciation. Public Sector Perspective: The objectives are broader and...
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...The Positive Theory of Accounting Outline In the text, Scott defines Positive accounting theory (PAT) as: “concerned with predicting such actions as the choices of accounting policies by firms and how firms will respond to proposed new accounting standards.” (263) PAT uses theory to predict the choices that management will make regarding their choice of accounting policies. This theory is introduced as a way to merge efficient securities markets with economic consequences. PAT takes the view that firms will conduct themselves in the way that maximizes their own best interests. Managers do not always do what is best for shareholders, but what will be the most beneficial to their organization. The choices that an organization makes are dependent on what industry they are in, and the factors within that industry An organization can be portrayed by the contracts it enters into. A firm’s contracts with employees, suppliers, lenders, and shareholders are central to its operations. The organization is inclined to keep these contract costs as low as possible. PAT emphasizes that an organization’s choice of accounting policies is motivated by keeping contract costs down. PAT does not propose that organizations completely identify what accounting policies they will use. Such specification is costly to commit to, and does not give management the opportunity to respond to unforeseen circumstances. Managers have flexibility to choose from a set of accounting policies, and...
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...Synopsis Positive accounting theory is perceived as a hypothetical study in accounting which helps in clarifying and foreseeing tangible accounting procedures. These theories have a tendency to rationalize why a number of accounting practices are accepted than others. Positive accounting theory was introduced to better apprehend exactly how practices in accounting must be effectively managed. Introduction Modern positive accounting research began flourishing in the 1960’s and other introduce empirical finance method to financial accounting. The subsequent literature adopted the assumption that accounting number supply information for security market investment decision and used the information perspective to investigate the relation between accounting number and stack prices. The information perspective has taught us much about the market’s use of accounting numbers. It was structured as an educational thought of discipline by the efforts of Ross Watts and Jerold Zimmerman which when made known were received with extensive criticism. Summary of the Article Positive accounting can be related with the predetermined opinion of a firm. A firm is regarded as a conception initiative put forth by a number of economists and legal commentators which stresses that corporations are nothing more than a compilation of agreements concerning different parties – mostly shareholders, directors, employees, suppliers, customers and accounting – one tool to expedite the materialization...
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...Positive accounting theory (PAT) is a general term for any theory that provides descriptive information regarding the behavior of accountants. The title has been used by Watts and Zimmerman and this is largely an expansion of previous studies carried out firstly by Fama and later by Ball & Brown in the 1960’s. In looking at the apparent acceptance by politicians, firms and wide publication in academic journals PAT could easily be mistaken as being a success. A deeper analysis of the premises of PAT, its questionable scientific status, and the groups upon whom this theory has appealed to would suggest that it is flawed on many levels and is little more than an argument for deregulation and market capitalism. This opposes its claim to be a useful theory used regularly by those concerned with the effects of accounting policy on the status of the firm. The Premises of Positive Accounting Theory Positive Accounting Theory finds its roots with the Efficient Market Hypothesis (EMH). The EMH was developed by Fama in the 1960’s and is based on economic principles and assumes a perfect market where there is information symmetry and no transaction costs. The semi strong form of EMH argues that capital markets will reflect all information that is publicly available and it is this form that Watts and Zimmerman claim to be predominant. The EMH was used in a study performed by Ball and Brown during the same period. The Ball and Brown study rejected the argument put forward by normative theorists...
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...Financial Accounting Theory Chapter 8 – Summary The Positive Theory of Accounting 1. Outline In the text, Scott defines Positive accounting theory (PAT) as: “concerned with predicting such actions as the choices of accounting policies by firms and how firms will respond to proposed new accounting standards.” (263) PAT uses theory to predict the choices that management will make regarding their choice of accounting policies. This theory is introduced as a way to merge efficient securities markets with economic consequences. PAT takes the view that firms will conduct themselves in the way that maximizes their own best interests. Managers do not always do what is best for shareholders, but what will be the most beneficial to their organization. The choices that an organization makes are dependant on what industry they are in, and the factors within that industry. An organization can be portrayed by the contracts it enters into. A firm’s contracts with employees, suppliers, lenders, and shareholders are central to its operations. The organization is inclined to keep these contract costs as low as possible. PAT emphasizes that an organization’s choice of accounting policies is motivated by keeping contract costs down. PAT does not propose that organizations completely identify what accounting policies they will use. Such specification is costly to commit to, and does not give management the opportunity to respond to unforeseen circumstances. ...
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...136 Positive Accounting Theory and Science JCC Journal of CENTRUM Cathedra ™ Positive Accounting Theory and Science by M. Humayun Kabir Senior Lecturer, Faculty of Business Auckland University of Technology, Auckland, New Zealand Abstract This paper examines the development of positive accounting theory (PAT) and compares it with three standard accounts of science: Popper (1959), Kuhn (1996), and Lakatos (1970). PAT has been one of the most influential accounting research programs during the last four decades. One important reason which Watts & Zimmerman (1986) have used to popularize and legitimize their approach is that their view of accounting theory is the same as that used in science. Thus, it is important to examine how far accounting has been successful in imitating natural science and how the development of PAT compares with the three standard accounts of science. This paper shows that accounting could not emulate the success of natural science. Further, the methodological positions of PAT conform to none of the standard accounts of science. Rather, PAT contains elements of all three. Finally, this paper identifies some methodological gaps in PAT. Keywords: Positive Accounting Theory, Philosophy of Science, Methodological Controversies Acknowledgements I would like to thank two anonymous reviewers of the journal for their helpful comments. Earlier versions of this paper benefited from comments from Lee Parker of the University of South Australia, Keith...
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...Introduction This paper examines the development of positive accounting theory (PAT) and compares it with three standard accounts of science. There is some confusion about what PAT is. If the definition of accounting theory (i.e., accounting theory seeks to explain and predict accounting and auditing practice) given in Watts and Zimmerman’s 1986 book is taken to mean PAT, studies of accounting choices and auditing practices constitute PAT. At the same time, they also seek to explain the economics-based empirical literature in accounting and they describe, in addition to accounting choice studies, capital market-based accounting research. They point out that Ball and Brown (1968) initially popularized positive research in accounting, suggesting that PAT includes both capital market-based accounting research and research in accounting choices. This paper takes PAT to include both research programs. This usage is consistent with Watts and Zimmerman’s (1986) assertion that when they use the term “positive” to differentiate it from “prescriptive” theory. Positive Accounting Theory and Science by M. Humayun Kabir Senior Lecturer, Faculty of Business Auckland University of Technology, Auckland, New Zealand Abstract This paper examines the development of positive accounting theory (PAT) and compares it with three standard accounts of science: Popper (1959), Kuhn (1996), and Lakatos (1970). PAT has been one of the most influential accounting research programs...
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...Walt Disney is the one of the companies that I researched on what theories they implement in employee empowerment culture. The reason this company came to mind is because it is known as the happiest place on earth. A company that is known to be the happiest place on earth definitely caught my attention on how to implement what they have in place in our company. They have been successful for many years and keep going strong, so what better company to get guidance and mirror what they do for employee empowerment culture. Disney’s believes in developing their employees’ responsibilities and confidence in the Disney workplace. They build solid working relationships that enable the employees to feel great about themselves and customer relations. Disney has been categorized as a leader in theories on employee empowerment. Their culture is educating all the employees about the value and mission of Disney where an employee has to have dedication, passion, community skills, innovation, and quality in making Disney stand out every day in the business world (Disney, 2011). Disney offers great benefits that include child care, stocks, vacation, complimentary park passes, insurance, vacation, education reimbursement, service awards and development opportunities. This is a really good theory for one good reason and that is that Disney believes that an employee will spend minimal time in worrying on personal situations and maximum time in sharpening their skills on the job...
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...communication theory you feel offer the best approach for theorizing and argue for its relevant contribution to the study of human communication. Explain your choice. Defend your answer. Number your arguments. Sociocultural communication theory: Sociocultural theory conceptualizes communication as a symbolic process that produces and reproduces shared meanings, rituals, and social structures. (Sokolowski R 2000 pg.74) 1) This theory allows us to communicate with all types of groups and share same views and listen to others view’s as well. 2) Social cultural approaches to communication theory address the ways our understanding, meaning, norms, and roles. The Phenomenological Tradition: is one that focused on descriptions of what people experience and how it is that they experience what they experience. One can employ a general phenomenological perspective to elucidate the importance of using methods that capture people's experience of the world without conducting a phenomenological study that focuses on the essence of shared experience. (Sokolowski R 2000 pg.88) 1) This concept comes from the area of philosophy which makes it great for all kinds of theories because each one has a philosophical aspect to it. 2) This makes it easier to share experiences with other and groups we see what each other as gone through. 2. What is a theory? (how do you know one when you get out of bed and trip over one?) What is the nature of communication theory? Why should...
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...by management method before Tylor theory, this situation will lead that working efficiency decreasing, Thus, efficiency is the critical part of output in industry, scientific management will improve efficiency of working, And the Taylor created a classical management theory form, it has scientific management thought and theory, and this theory also influence that practice and theory. The aim of scientific management is to seek the max efficiency. The basis of common prosperity is the highest working efficiency between employees and employers and make that higher wage and labor cost together, then it could improve the production of industry and development of industry. An important method to achieve the highest working efficiency is to replace the past experience management with a scientific and standardized management method. Therefore, Taylor has put forward certain essential management systems. In traditional management, the method of management according to personal experience, this condition causes the capitalists do not know how many workers in one day in the end to complete the task, but always felt they do less, get more wages, so it will extend the working hours, increase labor intensity. Standing on the perspective of the staff is, they do not know how many tasks can be completed, but will consider doing more, less harvest wages. Taylor consider that the key problem of management is efficiency, Thus, the one of the Taylor theory is ‘division of tasks and responsibility...
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...Business Theory The foundation of business theory has been, and always will be, a consistently evolving process for as long as the exchange process is around. Since the early stages of mercantilism, in the seventeenth century, business theories began to shape the daily operations of ventures. However, it should be clearly understood that a theory does not provide a definite solution to success. Instead, theories are merely “a set of assumptions, propositions, or accepted facts that attempts to provide a plausible or rational explanation of cause-and-effect relationship among a group of observed phenomenon.” These ‘acceptable facts’ will in turn shape a business’s goals to obtain success within their respective industry. Writer, and business theorist himself, Riad Ajami explains, “Theories of trade have evolved over time, beginning with the emergence of strong nation-states and the organization for systematic exchanges of goods among these nations”. (Ajami, 48) Throughout this document, six business environments (domestic, global, technological, political-legal, sociocultural, and economic) will be explored, in regards to how these environments affect the ongoing evolution of future business theories. Business theorists have changed the way people do business, not only from a domestic standpoint, but on a global level as well. The domestic and global environments are primarily based on demand conditions. ‘Conditions’ of a business theory can in turn be used in a business’s...
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