Bridging the paradigm divide in management accounting research: The role of mixed methods approaches

This paper discusses the role of mixed methods research in management accounting and how it may help researchers bridge the divide between the economics-based, functionalist ‘mainstream’ and the ‘alternative’ paradigm informed by interpretive and critical perspectives. Whilst noting the considerable barriers to dialogue across these paradigms, I outline how mixed methods research can be mobilized as part of a strategy of meta-triangulation to engender inter-paradigmatic engagement.     

On the Definitions of Income and Revenue in IFRS

In a previous issue of this journal, Richard Barker addressed some problems with the IFRS definitions of income and profit. I apply his conclusions to the definition of ‘revenue’ that he did not cover. I point out other difficulties with the definition: the implication that some sales to customers are not revenue, the implication that receipts to settle accounts receivable (or to sell receivables to a bank) are revenue, and the out-dated term ‘ordinary activities’. Most of the problems with the definition of revenue remain in the IASB's exposure drafts of 2010 and 2011. I also suggest that, despite IASB statements, fair value gains on assets should not be considered to be revenue, and nor should the financial receipts of non-financial companies. This leads to the suggestion that a replacement for IAS 18 should deal with the wider topic of ‘income’, and then define ‘revenue’ more narrowly than at present as the gross increase in equity resulting from inflows from customers for certain types of performance under contracts.     

Execution in an aggregator

An aggregator is a technology that consolidates liquidity—in the form of bid and ask prices and amounts—from multiple sources into a single unified order book to facilitate ‘best-price’ execution. It is widely used by traders in financial markets, particularly those in the globally fragmented spot currency market. In this paper, I study the properties of execution in an aggregator where multiple liquidity providers (LPs) compete for a trader’s uninformed flow. There are two main contributions. Firstly, I formulate a model for the liquidity dynamics and contract formation process, and use this to characterize key trading metrics such as the observed inside spread in the aggregator, the reject rate due to the so-called ‘last-look’ trade acceptance process, the effective spread that the trader pays, as well as the market share and gross revenues of the LPs. An important observation here is that aggregation induces adverse selection where the LP that receives the trader’s deal request will suffer from the ‘Winner’s curse’, and this effect grows stronger when the trader increases the number of participants in the aggregator. To defend against this, the model allows LPs to adjust the nominal spread they charge or alter the trade acceptance criteria. This interplay is a key determinant of transaction costs. Secondly, I analyse the properties of different execution styles. I show that when the trader splits her order across multiple LPs, a single provider that has quick market access and for whom it is relatively expensive to internalize risk can effectively force all other providers to join her in externalizing the trader’s flow thereby maximizing the market impact and aggregate hedging costs. It is therefore not only the number, but also the type of LP and execution style adopted by the trader that determines transaction costs.     

Last look

In over-the-counter markets, a trader typically sources indicative quotes from a number of competing liquidity providers, and then sends a deal request on the best available price for consideration by the originating liquidity provider. Due to the communication and processing latencies involved in this negotiation, and in a continuously evolving market, the price may have moved by the time the liquidity provider considers the trader’s request. At what point has the price moved too far away from the quote originally shown for the liquidity provider to reject the deal request? Or perhaps the request can still be accepted but only on a revised rate? ‘Last look’ is the process that makes this decision, i.e. it determines whether to accept—and if so at what rate—or reject a trader’s deal request subject to the constraints of an agreed trading protocol. In this paper, I study how the execution risk and transaction costs faced by the trader are influenced by the last look logic and choice of trading protocol. I distinguish between various ‘symmetric’ and ‘asymmetric’ last look designs and consider trading protocols that differ on whether, and if so to what extent, price improvements and slippage can be passed on to the trader. All this is done within a unified framework that allows for a detailed comparative analysis. I present two main findings. Firstly, the choice of last look design and trading protocol determines the degree of execution risk inherent in the process, but the effective transaction costs borne by the trader need not be affected by it. Secondly, when a trader adversely selects the liquidity provider she chooses to deal with, the distinction between the different symmetric and asymmetric last look designs fades and the primary driver of execution risk is the choice of trading protocol.     

Four questions for risk communication

The ‘relational theory of risk,’ proposed by Åsa Boholm and Hervé Corvellec in Journal of Risk Research in 2011, offers a theory of human constructions of risk, a theory that has not only sociological, but also ethical implications. Drawing upon interdisciplinary sociological and philosophical material, the present article suggests three ways to refine the relational theory of risk. First, I call attention to threatening relationships that are dangerous rather than risky. Second, I argue that a risk relationship only implies the ‘exclusion’ of the threatening object if the person who constructs the risk relationship chooses to distrust the threatening object rather than to trust it. Third, I amend the relational theory’s explanation of social risk conflicts by raising the question of the origin of the harm, either in the injured party itself or in the external environment. These refinements strengthen the explanatory power of the relational theory both regarding sociology and ethics. In consequence, I propose a Relational Theory of Risk and Danger.     

Reliability rating and reflective questioning: a case study of extended review on Australia's risk assessment of Bt cotton

The governance of emerging technologies is frequently constructed around risk assessment processes. However, when risk assessment as a decision‐making tool is applied to controversial fields such as genetic modification, stem cell research and nano‐scaled science and technology, inherent uncertainties and conflicting social values arise to challenge the adequacy of traditional approaches. In this paper, I propose a framework through which risk assessments may be exposed to a process of ‘extended review’, incorporating both natural and social science quality criteria and modes of reflection. I call this framework ‘Reliability Rating and Reflective Questioning’. The framework is developed through a detailed case study review of a particular risk assessment document. The case study risk assessment reviewed in this paper is that performed by an Australian governmental authority on the impact of genetically modified ‘Bt’ cotton on non‐target organisms. Through highlighting errors, misrepresentations, assumptions and embedded value judgements within the risk assessment document, I argue that the framework of ‘Reliability Rating and Reflective Questioning’ can serve as a useful tool for gauging and improving the quality of risk assessment, especially when used as a decision‐making tool for emerging technologies with high levels of uncertainty and strongly conflicting values.     

Probapossible prolegomena to ideareal history

In this essay (which means ‘trial’) I propose to do five things: define science fiction ; show why it arose when it did ; explain why it is becoming steadily more popular; demonstrate that just as it has thus far produced no towering literary masterworks, so no such work can be expected of it in the future ; and place it as a familiar phenomenon in world history.     

„Unisex-Tarife“ — Gleichbehandlung von Männern und Frauen im privatrechtlichen Versicherungswesen

The enactment of a council directive ‘implementing the principle of equal treatment between women and men in the access to and supply of goods and services’ is beyond the EC’s legislative competences as far as it obliges private insurers to charge ‘unisex-rates’. Especially Art. 13 ECT constitutes no corresponding jurisdiction. Furthermore the compatibility of the draft directive and the principle of subsidiarity as laid down in Art. 5 II ECT is very doubtful. German laws implementing the directive needed to be in accordance with the Basic Constitutional Law of the Federal Republic of Germany since a considerable leeway in implementing the directive is left to the national legislator. In this respect such rules of law are open to judicial review by German courts of justice. The Federal legislator would have a so called concurring legislative competence according to Art. 74 I Nr. 11 GG (insurance industry under private law) and Art. 72 II GG. The legal obligation to apply ‘unisex-rates’ would lead to an unequal treatment of the sexes without adequate justification. Thus German implementation laws would infringe Art. 3 II1 and III 1 GG. The ban of gender-related actuarial factors would, after all, be incompatible with the Freedom of Profession of the concerned insurers guaranteed in Art. 12 I GG.     

Predicting Corporate Failure Using a Neural Network Approach

This paper investigates the performance of Artificial Neural Networks for the classification and subsequent prediction of business entities into failed and non-failed classes. Two techniques, back-propagation and Optimal Estimation Theory (OET), are used to train the neural networks to predict bankruptcy filings. The data are drawn from Compustat data tapes representing a cross-section of industries. The results obtained with the neural networks are compared with other well-known bankruptcy prediction techniques such as discriminant analysis, probit and logit, as well as against benchmarks provided by directly applying the bankruptcy prediction models developed by Altman (1968) and Ohlson (1980) to our data set. We control the degree of ‘disproportionate sampling’ by creating ‘training’ and ‘testing’ populations with proportions of bankrupt firms ranging from 1% to 50%. For each population, we apply each technique 50 times to determine stable accuracy rates in terms of Type I, Type II and Total Error. We show that the performance of various classification techniques, in terms of their classification errors, depends on the proportions of bankrupt firms in the training and testing data sets, the variables used in the models, and assumptions about the relative costs of Type I and Type II errors. The neural network solutions do not achieve the ‘magical’ results that literature in this field often promises, although there are notable 'pockets' of superior performance by the neural networks, depending on particular combinations of proportions of bankrupt firms in training and testing data sets and assumptions about the relative costs of Type I and Type II errors. However, since we tested only one architecture for the neural network, it will be necessary to investigate potential improvements in neural network performance through systematic changes in neural network architecture.     

Does beta react to market conditions? Estimates of ‘bull’ and ‘bear’ betas using a nonlinear market model with an endogenous threshold parameter

The authors use a logistic smooth transition market (LSTM) model to investigate whether ‘bull’ and ‘bear’ market betas for Australian industry portfolios returns differ. The LSTM model allows the data to determine a threshold parameter that differentiates between ‘bull’ and ‘bear’ states, and it also allows for smooth transition between these two states. Their results indicate that ‘bull’ and ‘bear’ betas are significantly different for most industries, and that up-market risk is not always lower than down-market risk. LSTM models indicate that the transition between ‘bull’ and ‘bear’ states is abrupt, supporting a dual-beta market modelling framework.     

A simple template for pitching research

In this article, I propose a simple new research tool – a template designed for pitching research. The two‐page pitching template begins with four ‘preliminaries’: working title, research question, key papers and motivation. Following this is the core of the template based on a ‘3‐2‐1 countdown’, namely THREE elements – idea, data and tools; TWO questions – What's new? and So what?; and ONE bottom line – contribution. The template ends with ‘other’ considerations. Finance and accounting examples are given to illustrate application of the template.     

River stories: Genealogies of a threatened inland river system

Most people now living in Australia's “bread basket”, the much-degraded Murray Darling Basin, are like my family, descendants of convicts or free settlers who came to the inland in the 19th or early 20th centuries. Our legacy includes the dispossession of indigenous peoples, species extinction and the ongoing degradation of the ecological communities which now sustain us. My own family's river stories which “begin” with a pair of impoverished Gaels who migrated with their offspring from the Scottish Highlands, can be considered paradigmatic. I re-narrate it in this essay in response to philosopher Alasdair MacIntyre's challenge—I can only answer the question ‘What am I to do?’ if I can answer the prior question ‘Of what story or stories do I find myself a part?’Some of these family stories I find myself part of, especially those that have been enacted within the catchment of the now-threatened Lachlan River, are very discomforting, but where do they “truly” begin? In seeking to understand my relationship with the river and its catchment, and with the indigenous peoples “my mob” displaced, I explore several possible “beginnings” and ask a further question: what stories do I want to be part of as co-author, co-narrator and protagonist. I then offer my own yet-to-be enacted “truth and reconciliation” stories about the future of the inland plains I love.     

Towards a fair degrowth-society: Justice and the right to a ‘good life’ beyond growth

A critical scrutiny is presented of the ethical assumptions of growth and degrowth theories with respect to distributive justice and the normative conditions for a ‘good human life’. An argument is made in favor of Sen's and Nussbaum's ‘capabilities approach’ as the most suitable theoretical framework for addressing these questions. Since industrialization economic growth has played a key-role as an attraction pole, around which issues of social justice, political stability, and welfare protection seemed to gravitate. Accordingly, it is considered as a necessary condition for both intragenerational and intragenerational justice. These assumptions have been subjected to substantial critique by degrowth-thinkers, according to which economic growth is rather a threat than a condition for intragenerational and intergenerational justice. However, a theoretical underpinning of these assumptions is missing so far. In the paper I analyze the ethical and moral assumptions in both approaches by focusing on the theories of justice that are implicitly laid down as a background for their arguments (welfarism, resourcism, and the capabilities-approach). In a detailed analysis of the main critical points formulated by degrowth advocates I take the capabilities approach perspective and show why it can offer a more adequate normative underpinning for the conceptualization of a degrowth society.     

Regimes of risk management in corporate annual reports: a case‐study of one globalizing Australian company

An approach to the study of the ‘risks’ of ‘globalization’ that are increasingly the focus of global protest is outlined. By enrolling a blend of Mary Douglas' cultural approach to ‘risk’ and Ulrich Beck's theory of the ‘risk society,’ it is argued that three distinct ‘regimes of risk management’ are evident in corporate activity. After showing that corporate annual reports are useful for analysis of those effects, the argument is tested/illustrated through a case‐study of the reports of Amcor, a typically internationalizing Australian company. It is concluded that disputes over the ‘risks’ of ‘globalization’ are likely to become even more intense.     

Consequences of perceived acceptability of a bank's service failures

This paper presents a study of service failures of a bank and their impact on customer satisfaction and recommendation intention. In contrast to most other studies on this topic, this study uses a large, real-customer sample where the respondents describe a real failure incident, regardless of whether they complained about it. The paper aims to make three contributions: first, based on a literature review, it introduces the construct of ‘acceptability’ of service failures and relates it to the concept of a ‘tolerance zone’ for dissatisfaction. Secondly, it tests its impact on satisfaction and recommendation intention, which is both statistically significant and managerially relevant. Thirdly, the ‘service failure pyramid’ as a managerial tool is proposed and linked to the idea of perceiving every service encounter as a ‘moment of truth’. As a consequence, the use of a ‘perceived acceptability’ measure in customer surveys is suggested.     

Americanism and financial accounting theory – Part 3: Adam Smith,the rise and fall of socialism,and Irving Fisher's theory of accounting

A previous paper (Part 1) rejected the conventional wisdom that America was ‘born capitalist’ and the historians’ consensus that it had become capitalist by the early-19th century; another (Part 2) rejected Chandler's thesis that the ‘modern business enterprise’ brought a ‘new form of capitalism’ to America from the 1840s. The accounting evidence suggests that America began to make the transition to capitalism around 1900 in a period of intense conflict between ‘capital and labour’ generated by ‘big business’ from the 1880s, a process not completed until the 1920s. This paper (Part 3) examines the consequences for America's political ideology and financial accounting theory. America's exceptional transition, it argues, explains the history of its political ideology, and this history explains Irving Fisher's theory of accounting. Section A argues that America lagged behind Britain because it started from a society of simple commodity producers and semi-capitalists, which created an exceptional ideological problem for its ruling elite. Big business generated hostility from workers, farmers and small employers – expressed in labour movements, ‘populism’, socialism, and ‘progressivism’ – and created an ideological problem by contradicting the ‘independent producer’ ideology of workers and farmers, and the ‘individual liberalism’ of small manufacturers and merchants, both underwritten by Adam Smith's Wealth of Nations. The paper argues that Smith's theory of price articulates as semi-capitalist accounting, which explains his popularity in America until the appearance of big business in the 1880s. Socialism and progressivism became political forces in America from 1900 to around 1920. Progressivism produced ‘corporate liberalism’, the ideological counter to socialism that corporations could be made ‘socially responsible’ by government regulation and ‘publicity’ to ensure they earned only ‘fair’ returns, but this left two problems. First, socialists argued that no profit was ‘fair’, and second, fear of the ‘labour danger’ made American financial reports secretive and conservative. Section B argues that Irving Fisher responded to these problems with a theory of accounting, which he developed as a refutation of Marx and the American brand of socialism advocated by Eugene Debs, the threateningly successful presidential candidate of the Socialist Party of America. An important but neglected reason for socialism's abrupt collapse around 1920, it argues, was that the socialists lost the intellectual argument with the middle classes, and that Fisher's theory played an important role in this defeat. Fisher was a vigorous self-publicist, strongly influenced the teaching of economics and accounting in the universities and, the paper argues, changed the language of American accounting. Fisher claimed that accounting practice supported his theory of ‘capital’ and ‘income’, but the paper shows he did not understand double-entry bookkeeping or the accountants’ ‘cost theory of value’, and therefore divorced accounting from the reality of business transactions. As his theory underlies the FASB's framework, the paper concludes that Fisher's legacy to the world is a pathological theory of financial accounting.     

Price satisfaction and personnel efficiency as antecedents of overall satisfaction from consumer credit products and positive word of mouth

The paper aims to explore the potential impact of ‘bank personnel efficiency’ and ‘price satisfaction’ on overall customer satisfaction of consumer credit products and positive word of mouth (WOM). Furthermore it aims to provide bank managers with useful insights into the development of high quality relationships with customers. ‘Personnel efficiency’, is related to the human factor of service quality, while ‘price satisfaction’ refers to the customers’ subjective view of the bank's pricing policy. The research involved a review of the available literature on service quality dimensions and their effect on satisfaction and WOM. For the collection of data, a survey was designed and conducted in the greater area of Athens, Greece. The research questionnaire was administered by means of personal interviews to 750 bank customers. Data analysis, using structural equation modelling, suggests that ‘personnel efficiency’ and ‘price satisfaction’ are antecedents of overall ‘customer satisfaction’, which is a prerequisite for positive ‘word of mouth’.     

Bridging the academic–policy-making gap: practice and policy issues

How policy-makers engage with academics is both a current ‘hot’ topic and a perennial problem. Policy initiatives such as the Research Excellence Framework's (REF) so-called ‘impact agenda’ have ‘pushed’ academics towards seeking more such engagement, whilst others ‘pull’ towards it, such as ‘open policy-making’. Apart from some biographical accounts and case studies, surprisingly little is known at a more general level about how policy-makers do actually engage with academic research and expertise. Analysis of these policies, as well as empirical evidence from the British civil service, suggest these engagements may be generating more ‘endarkenment’ (to use Weiss's term) than enlightenment.     

Call options and the risk of underlying securities

Merton (1973) in his seminal article ‘Theory of Rational Option Pricing’ showed that the rationally determined price of a call option is a non-decreasing function of the ‘riskness’ of its associated common stock. In deriving his results, Merton made restrictive assumptions about the way the market prices payoff distributions, and used the Rothschild-Stiglitz (1970) measure to compare the riskiness of securities. I show by means of an example that the Merton result will not in general be true. I then derive a sufficient condition for the option on one stock to have higher market value than the option on another stock, when both the stocks have the same price, and explain why the Merton result is valid in the Black-Scholes environment.     

Strategic insider trading around earnings announcements in Australia

This paper tests, within the Australian setting, whether directors strategically time trades in their own firms, around earnings announcements, in the context of impediments to trading in the immediately preceding period. I show that both signed and unsigned trade activity are insignificantly different from zero in the preceding period, and significantly negative and positive after the event. Further, directors in Australia significantly sell following positive earnings news, and buy after negative news, providing evidence of ‘indirect’ trading. Directors’ trades in the longer-term pre-announcement period are also negatively related to the news content sentiment, contrary to expectation. Finally, I find evidence of positive autocorrelation between directors’ trades over the longer-term past, and those executed after earnings announcements, which, in the absence of the ‘short-swing’ rule in Australia, casts doubt over short-term strategic insider trading, more generally.