Institutional theory and accounting rule choice: an analysis of four US state governments' decisions to adopt generally accepted accounting principles

In this study, we use institutional theory to explore how institutional pressures exerted on four state governments (New York, Michigan, Ohio, Delaware) influenced the decision of these governments to adopt or resist the use of generally accepted accounting principles (GAAP) for external financial reporting. We identify resource dependence as a potent form of coercive institutional pressure that was associated with early GAAP adoption. We identify three factors that may lead to initial resistance to institutional pressures for change. First, if accounting bureaucrats are not active in professional associations that promote GAAP adoption, they may miss the educational process that we believe is important to early adoption of GAAP. Second, organizational printing may impede GAAP adoption. Third, powerful interests may impede GAAP if the proposed GAAP legislation is expected to alter the existing power relationships. We found that key accounting bureaucrats in New York and Michigan used “compromise” as an initial strategic response to institutional pressures to adopt GAAP, Ohio's key accounting bureaucrat adopted a “defy” strategy, although the political leadership endorsed an “acquiesce” strategy. While Delaware initially employed a “manipulate”strategy with some success. Delaware did not adopt GAAP for external reporting until a political entrepreneur for GAAP emerged in the early 1990s. Our study suggests that all strategic responses to resist institutional pressures for GAAP adoption will ultimately fail because of the potency of the institutional pressures that result from the well organized professional accounting and governmental institutional fields.     

Accounting and the examination: A genealogy of disciplinary power

Historical elaboration of Foucault's concept of “power-knowledge” can explain both the late-medieval developments in accounting technology and why the near-universal adoption of a discourse of accountancy is delayed until the nineteenth century. It is the disciplinary techniques of elite medieval educational institutions—the new universities and their examinations—that generate new power-knowledge relations. These techniques embody forms of textual rewriting (including the new “alphanumeric” system) from which the accounting advances are produced and “control” is formalised. “Double-entry” is an aspect of these rewritings, linked also to the new writing and rewritings of money, especially the bill of exchange. By the eighteenth century accounting technologies are feeding back in a general way into educational practice (e.g. in the deployment of “book-keeping” on pupils) and this culminates in the introduction of the written examination and the mathematical mark. A new regime of “objective” evaluation of total populations, made up of individually “calculable” subjects, is thereby engendered and then extended — apparently first in the U.S. railroads — into modern comprehensive management and financial accounting systems (systems of “accountability” embodying Foucault's “reciprocal hierarchical observation” and “normalising judgement”), while written examinations become used to legitimate the newly autonomous profession of accountancy.     

On the role of sunk costs and asset specificity in outsourcing decisions: a research note

The accounting literature has argued that firms overengage in outsourcing because they tend to ignore the transaction costs involved in buying services from external suppliers. A field experiment with managers of health care organizations shows that decision makers are actually quite sensitive to the asset specificity associated with the “buy” option in an outsourcing decision. However, they also appear inappropriately sensitive to the sunk costs inherent in most real-life outsourcing decisions, and may actually underengage in outsourcing. Prior commitment to internal procurement systematically reduced the willingness to outsource, relative to a pure “make or buy” scenario.     

The pattern of PPB rejection: Something about organizations, something about PPB

“Pathology” is defined in Webster's dictionary as “… the study of the essential nature of diseases and especially of the structural and functional changes produced by them”. Thus, a pathological study can reveal information concerning both a disease or toxin and the organism to which it is introduced.Planning, programming and budgeting (PPB) was introduced in not-for-profit organizations in order to improve organizational planning and control. It failed. The purpose of this paper is to conduct a study in pathology concerning PPB and the not-for-profit organization. PPB is considered to be the toxin. The not-for-profit organization is considered to be the organism. The scalpels employed in conducting the examination were forged in the organizational, planning and control, and general systems theory literatures.     

The ambiguities of globalization

Current discussions of globalization are flawed by confusing two issues: (1) the economic competition among sovereign nation states—so-called “global competitiveness”—which is used as an excuse to reduce social support budgets; and (2) the value of worldwide international organizations set up on a non-state basis—humanitarian, environmental or human rights NGOs, professional, sporting, labor or whatever. Opposition to “globalization” in the first sense is no obstacle to support for the second (NGO) development: on the contrary, NGOs can be the best instrument for countering inhuman governmental policies. The cogency of these economic arguments rests, this paper argues, on confusing two interpretations of the terms “global” and “globalization”. In multinational businesses or other global enterprises, these terms imply that the economic role of governments will be reduced, and global competition will take place between corporations: Fuji vs Kodak, Boeing vs Airbus, Compaq vs Toshiba. In governments, by contrast, the same terms imply a continued—even, enhanced—economic role for governments, so that global competition takes place, rather, between countries: Britain vs Germany, Japan vs the United States, Europe vs America. Business and Government talk at cross-purposes. The steps that multinational corporations take to reduce other “non-wage” labor costs—notably, their taxes—are seen by politicians and journalists as unpatriotic. Rather than follow business onto the global stage, defenders of environmental and labour interests retreat to the domestic stage, and leave governments to bring the corporations into line. If tackled on this level alone, the economic arguments are, indeed, hard to undercut: addressed “one nation state at a time” (so to say) matters of “comparative advantage” tempt rival governments to engage in competitive cost cutting, and the costs of social services are an obvious target for cost cutting, e.g. in France or Sweden. Tackled on a wider (“global”) level, however, the same issues can be stated in terms less damaging to labour and environmental interests. A Global Labour Office capable of looking the World Trade Organization in the eye, for instance, could set standards protecting those interests as strongly as those insisted on by international agencies for “transparency” in accounting, “fair” competition and the like. Excessive cutbacks in social protections, indeed, can then be judged to be “unfair” competition, and penalized as such.     

Accounting systems in organisational contexts: A case for critical theory

This paper starts from the view that accounting systems in organisational contexts are more than technical phenomena and that to understand and change these technical elements the social roots must also be both understood and changed. To develop these insights, it is argued, requires major changes in the methodologies we adopt. This paper is addressed to arguing a case for a methodological approach to further these purposes which is derived from a German philosophical school of thought called “critical theory” — more specifically from Jürgen Habermas' interpretation of this thinking which gives particular emphasis to the social and technical aspects of societal phenomena which includes accounting systems.     

How can IMF policy eliminate country moral hazard and account for externalities?

Costly crisis prevention has positive external effects, which leads to free-riding of governments on each other's efforts. “Ordinary” IMF loans aggravate existing externalities, reinforcing the under-investment problem. We consider the reform proposals of the “Meltzer commission” in both loan and insurance models and show how the IMF can eliminate country moral. The efficiency-ensuring loan policy accounts for given externalities and involves effort-contingent discounts on interests or the extension of credit volume. Similar results hold for the insurance framework. Ex ante participation requires that smaller countries be “subsidized” by large ones, or that IMF policy consider distributional aspects in addition to efficiency.     

The two faces of organizational information

Organizational information, i.e. “facts” given and taken, and inferences drawn and established by participants within an organizational situation, may be examined in terms of its import to the relationship between an organization and its environment. A “locus” for organizational information is established in which information is classified as: (a) either inner- or other-directed: (b) either internally- or externally-based; and (c) either self- or other-referencing. Examples of organizational information in each of the eight possible categories are readily identified. Much, if not most, organizational information is probably best regarded as “two-faced”, i.e. as the product of inner- and other-directed needs taken together. For this reason, the basis, or justification of any item of organizational information is often obscure. This is seen to have consequences for organizational self-learning and self-delusion, and for the maintenance of organizational credibility and organizational secrets.     

Psychology, meaning and the challenges of longevity

Humankind has begun to reap one of the most valued harvests of its scientific and technological pursuits: a significant increase in human longevity. We now live longer than ever before, due in large part to advances in medicine and health care that provide those who have the opportunity to afford them a lifespan that for many approaches or exceeds the 100-year mark. It is now within the realm of possibility that people will live lives of 125 years or more within the next century. However, our ability to increase physical longevity may have outstripped our ability to deal individually and socially with these new lives, these new existences that go well beyond what has traditionally been considered a “working life”. How well-prepared are we psychologically to cope with the meaning of a life that extends to as much as 150 years or more? In this new “age of longevity”, what are the challenges for psychology as a resource for humanity in its quest to give definition to the experience of being alive, as well as for managing the affairs of everyday life? Traditional developmental theories in psychology tend to articulate early stages of life in detail, but are generally mute on the matter of later life. Cognitive psychology has been inclined to view longevity as leading to a deterioration of mental faculties due to “aging”. This paper examines the psychological implications of increased lifespans from an optimistic perspective by reviewing current developments in research on cognition, emotion and aging. The review identifies trends in psychology that, if emphasized and strengthened, may lead to improved theoretical frameworks that cast longevity in a positive light, and that identify how people can find meaning and fulfillment throughout their whole lifespan.

“Grow old along with me! The best is yet to be, The last of life for which the first was made.” Robert Browning “Rabbi Ben Ezra”

I first encountered Browning’s works as an undergraduate, and being a pre-engineering student at the time my tendencies toward poetry were stunted to say the best. Few of the great works of literature my teachers compelled me to read at that stage of my life and development made enough of an impact to last beyond the length of the course requiring their reading. Much has changed since then and my interests in literature and what literature has to say that is of value for our lives has deepened. But Browning’s enthusiastic call to join him in aging has always been a fascination. Indeed, what could be more of a contradiction to modern attitudes about becoming elderly than to claim “the best is yet to be”? What can be more of a challenge to how we approach the relationship between being young and being old than to claim that the last of life is “for which the first was meant”? What can the possible rewards of the golden years be that transcend the glorious enthusiasms, unfettered optimisms, and just pure physical conveniences of being young? Or, was Browning simply trying to sucker us all into a fait accompli, the hopeful outcome of which is the envy of the very youth that the aged often envy so much?There is little enough envy of the aged today. I approach these years with great caution, recognizing that how I look upon those who are two decades older than myself will, in turn, condition me to see myself in those years much in the way that I see them now. “Aging” is not something anyone really wants to do. We want to, at best, “grow older”, a perspective that carries with it a more positive spin: growing wiser, growing up, or simply “growing” with all of its new-age connotations of personal enlightenment and becoming. I am not “aging”, I am “becoming at one”.The language we have adopted to talk about the time-course of life, and particularly about the years in the latter third of that course, does much to frame both how we live those years and how we anticipate them in our youth. Our expectations are ones of decline, physical debilitation and mental infirmity. We “retire”, as in withdrawal into seclusion, away from the mainstream of life and into the backwater eddy of inaction. On the shelf.Much of this view has been reinforced by how humanity has approached examining this aspect of its own time course through science. We study aging with an eye to how its effects influence the abilities of those so afflicted to perform or operate compared to those who still have a grasp on their full faculties. And, of course, we find that as people grow older, they do not approach life in the same way as do younger people.Part of our view on life comes from the very way in which science is funded: those interested in the last of life often receive their support from the National Institute on Aging, not the National Institute on The Last of Life for Which the First Was Made. Research agendas often focus on identifying sources of infirmity and potential prostheses, either physical or social, that can ease the lives of the elderly on their way toward achieving the goal of successful aging. All too often, success in aging means imposing relatively few demands on social resources or on the lives of younger people, such as family members. In our “ageist” society, elderliness is not generally equated with status and stature. Less and less, the young “listen” to the old out of deep interest in their lives and their experiences. Wisdom is the providence of the freshly matured and recently educated.The shortcomings of life in the advancing years are many and well-documented in the research literature. Memory spans decrease, information retrieval becomes less reliable, and new information is less readily assimilated. As people become older, they appear to rely more and more on automatic processing of information, quick associations and the like, rather than deliberative and conscious reasoning [1]. For the older mind, intuition is at least moderately preferred over analysis. For example, younger people tend to interpret stories analytically, focusing on details, while older people tend to focus less on a story’s details and more on its “gist” and its underlying significance to things that are important to them [2], and tend to do better at grasping and dealing with information in terms of its holistic meaning [3 and 4].The effects of these differences in information processing between young and old can be seen in practical matters of everyday life, such as decision making and judgment. Johnson [5], for example, found that older adults use simplifying decision strategies more often than younger adults. These strategies, such as noncompensatory rules that consider only the positive or the negative aspects of a decision option but not both, relieve one of the psychological burden of making complex and effortful tradeoffs, at the possible expense of efficiency and accuracy. Chasseigne et al. [6] found that as people age, they become less consistent in their use of information in making judgments and predictions; even reducing the overall information load and demands on memory does little to improve the reliability of their judgments. ¹     

The four spikes

The unintended impacts of human appropriation of the planet's resources have become so numerous, voluminous, and entangled in feedback loops that they often overwhelm the capacities of decisionmakers to cope with current crises, much less prepare for a sustainable future. The difficulty may be alleviated by viewing global change from a broader perspective than is normally offered either by specialists (whose views are necessarily narrow) or by mainstream media (whose interests are usually fragmentary and parochial). From this broader perspective, it can be seen that four “megaphenomena” began sweeping the planet in the past century. Graphed on a time-line of millennia rather than years or days, they appear as four enormous “spikes” — of human population, materials/energy consumption, carbon dioxide concentration in the atmosphere, and extinctions of species. These megaphenomena account for the proliferation of afflictions swamping humanity at the outset of the 21st century. Understanding the nature of the spikes may offer the most viable means of managing — by attacking the roots — of what could otherwise escalate into an increasingly disastrous cascade of impacts.     

Information Uncertainty and Expected Returns

This study examines the role of information uncertainty (IU) in predicting cross-sectional stock returns. We define IU in terms of “value ambiguity,” or the precision with which firm value can be estimated by knowledgeable investors at reasonable cost. Using several different proxies for IU, we show that (1) on average, high-IU firms earn lower future returns (the “mean” effect), and (2) price and earnings momentum effects are much stronger among high-IU firms (the “interaction” effect). These findings are consistent with analytical models in which high IU exacerbates investor overconfidence and limits rational arbitrage.This revised version was published online in August 2005 with a corrected cover date.     

Men, children and the future of the family in the third millennium

This paper examines the effects of demographic change on the foundations of the family. The “first” demographic transition — the massive declines in fertility and mortality — is shown to have undermined the traditional male–female relationship based on parenthood. This has led to the gender revolution in the public sphere. The “second” demographic transition — the increases in divorce and cohabitation — is shown to have undermined the father–child relationship, reflecting women's control over children, a control that increased continually during the first demographic transition. This paper argues that the gender revolution needs to be brought into the family, increasing women's ability to compete in employment and men's ability both to choose whether to assume parental responsibility and to maintain active parental roles with their children.     

The impact of prior working papers on auditor evidential planning judgments

There has been significant concern in auditing about the effects of relying on prior working papers in planning audit procedures (“anchoring”). This study employed an experiment with varying information sets: prior working papers, current year information and “scenario” (summarized prior year information). Practicing auditors were asked to design a substantive audit program for a case where changes in the client's environment dictated additional procedures. A consensus program from three partners was used as a bench-mark. Experimental groups were about equally adaptive to the changing environment. However, auditors provided with prior working papers demonstrated lower efficiency. The scenario group exhibited both high relative effectiveness and efficiency, while current information subjects displayed the lowest overall level of performance.     

Strategic behavior and regulation research in accounting

This paper focuses on models of political behavior that implicitly or explicitly form the foundation for empirical economic consequences studies in accounting. The studies that have appeared adopt a single-period of single-agendum-item perspective. This paper discusses differences in rational political behavior that arise naturally in single-period versus multiperiod settings. The behavioral implications of varying configurations of available information on agents' “ preferences” are also considered. Because of the tremendously complex empirical domain being studied, examples are relied on heavily to motivate the discussion rather than engaging in a formal modeling exercise.     

Microcomputer competency requirements in the accounting industry: A pilot study

The significant changes in the accounting environment resulting from the expanding use of microcomputers suggests a need for an evaluation of the changing requirements placed on universities in educating accounting students. The purpose of this paper is to update information on how microcomputers are being used in public accounting and in industry and to report on the investigation of the resulting microcomputer competency requirements as defined from the perspective of those companies.There have been many attempts to define computer literacy (or competency) from a pedagogical point of view (see Barger [1983]). Herbert Simon [1983] explained the term, computer literacy, as a part of “a broader problem that has been with us for a long time … the problem of quantitative literacy for the population of the technical world.” Ijiri [1983] saw the problem as one of moving from illustrative methods of teaching that rely on the students' inductive abilities to the “algorithmic” method of instruction that utilizes the computer's powerful deductive abilities. In this study, however, microcomputer competency is defined in terms of the specific requirements of the accounting industry. The depth and breadth of desired knowledge for graduating accountants relating to broad microcomputer topics as well as specific concepts considered important by prospective employers are investigated. The normative question of curriculum development is not discussed, although the information presented may assist those involved in developing curricula in reaction to this important change in the accounting environment.     

The costs of organization structure: Dispelling the myths of independent divisions and organization-wide decision making

For theoretical and methodological convenience, accountants often assume that the divisions of an organization are largely independent of one another and that divisional managers therefore can make decisions consistent with global optimality. Along with these assumptions, accountants have taken the structure of an organization as fixed and not changeable. This paper suggests a framework and method for assessing the costs resulting from non-independent divisions, as a component of organization productivity. Also offered is a methodology for changing the structure of organizations so that these hidden “conversion costs” first will be exposed and then can be managed for productivity improvements. Structural change thus becomes an alternative to designing elaborate information/control systems as a way of managing interdependency problems. Furthermore, as organizations are redesigned to make divisions more independent, accountants can concentrateon more intermediate matters, such as procedures for optimally determining joint-cost allocation and transfer prices, with minimal interference from the divisional structure of the organization.     

The accounting of “The Meeting”: Examining calculability within a “Fluid” local space

This study traces events in an empirical setting where a key local space, “The Meeting”, was made calculable. Building on field data from interviews and documentary sources at ABB Industry/Finland, the study theorizes in the interpretive genre, elaborating on the notion of the calculable space. It argues the following: Accounting can be extended into un-formalized and more elusive local spaces – into “fluid” spaces which are not clearly mapped within the organizational hierarchy, and which lie beyond recognized responsibility units or physically distinct cells at the factory floor. By opening visibility into the discretion of these “fluid” local spaces, a tighter alignment between programmatic ideals and real action at the organizational grass-root can be achieved. Self-devised non-financial measurement, mediating local tensions and the interests of “autonomous” actors, becomes the technology of government in this process of normalization – which is, however, not to be acknowledged as being unproblematic.