Advancing Empirical Research in Management Accounting

1. Advancing Empirical Research in Management Accounting Christopher D. Ittner

2. Is Empirical Research in Management Accounting Declining? • All Management Accounting Publications in TAR, JAE, JAR, CAR, RAST, JMAR, and AOS • 1990-1996 (Shields, JMAR 1997) – mean = 21.71 per year • 2002-2004 (excluding review papers) – 48.3 per year • All Empirical Management Accounting Publications (Archival, Survey, Field Study) • 1990-1996 (Shields, JMAR 1997) – 9.57 per year • 2002-2004 – 24.0 per year • 2002-2004 (excluding executive compensation studies) – 17.33 per year Note: Shields (1997) only includes papers by North American authors, and excludes executive compensation studies

3. Is Empirical Research in Management Accounting Declining? • The number of empirical management accounting papers in The Accounting Review increased from 3 to 17 from 1999-2001 to 2002-2004 • Other observations • Editors of the major journals seem much more inclined to accept management accounting papers • Top journals in other fields are accepting related papers (e.g., Management Science, Journal of Marketing, ASQ, AMJ, etc.) • The feeling that a field’s research contributions are not being recognized is not unique to management accounting researchers

4. Moving Forward … • The onus is on management accounting researchers to improve the quality and contribution of empirical research • Research questions and motivation • Methodological issues • Data acquisition • Conjectures about the future direction of management accounting research

5. Research Questions and Motivation • What makes a good research question? • The topic is interesting to the reader • The question is motivated by theory, not just changes in practice • The answer is not obvious • The topic has not been over-examined (e.g., cost driver studies, studies linking non-financial measures to future financial performance) -- unless some argument can be made that the research question, setting, or design is unique and provides new insight

6. Research Questions and Motivation • Motivating the study is the key to acceptance • Why should the reviewer/reader care about this study? • What are the specific contributions of this study to the literature? • Why is this accounting? • Are empirical management accounting research questions just consulting? • There is nothing intrinsically wrong with consulting projects providing the basis for research studies (is financial accounting anomalies research any different?) • The keys are whether the project addresses an important research question, is objective, and provides a useful method for examining the question of interest

7. Research Questions and Motivation • Should fads drive management accounting research questions? • New practices/fads are useful means for motivating studies, if they can be tied to broader theories of interest to accounting researchers • The problem with chasing fads – they tend to close important avenues of research before they have been fully investigated (e.g., ABC)

8. An Example-- Recommended Directions for Managerial Accounting Research (1997) • Managerial accounting and organizational change • Strategic accounting • Accounting in horizontal and “learning” organizations • Broader organizational and inter-organizational accounting • Integrated, causal performance measures and decision support systems • Managerial accounting and organizational structure • Integrative research Sources: Shields; Atkinson et al. JMAR 1997

9. Research Questions and Motivation • Progress in management accounting will require developing research questions that incorporate multiple theoretical perspectives • Economics • Psychology • Sociology • Operations • Information technology

10. An Example– Executive Compensation • Most empirical studies are based on economic explanations that assume rational/optimal behavior • Why is the explanatory power so low for some of the key predictor variables? • What is the role of compensation consultants? • What alternative explanations exhibit a similar level of explanatory power? • Fixed number or constant value of stock options granted each year • Managerial power • Simple benchmarking to consulting surveys • Other “naïve heuristics”

11. Methodological Issues • Endogeneity • Frequent criticism of empirical management accounting research • Common to all empirical accounting research • Textbook solution is known, but almost impossible to “solve” in real-world applications • Recommendations • Acknowledge the problem and try to minimize • Tests for endogeneity • Explanatory power of instruments • Better explanation for use of instruments • See working papers by Chenhall and Moers; Larcker and Rusticus

12. Methodological Issues • Survey research • Getting harder to get adequate survey responses (tradeoff between response rate and survey length) • Improvements are needed in how management accounting practices are assessed (how would you know a balanced scorecard if you saw one?) • Self-reported performance is viewed with skepticism by many reviewers • Credibility can be enhanced by using multiple respondents, asking questions with “hard” responses, and linking to other data sources

13. Methodological Issues • New statistical tools are available to examine research questions • Structural models • Non-linearities • Complex interactions • “Unmixing” techniques • Qualitative data analysis • Make sure you are applying these methods correctly!

14. Many Integration Opportunities Exist … Archival/Survey Primary or secondary data Economics Classical statistics Experimental Primary data Psychological or economics Classical statistics Qualitative Primary or secondary data Various disciplines Exploratory analysis

15. Data Acquisition • Potential data sources • School and professional contacts • What’s in it for them? • Faculty members in other departments • Internet • Many companies will give access to academics for free or for a reduced rate • Do the strengths overcome the weaknesses? • Disclosure requirements • Proxy disclosures (exploit international differences in practices and disclosure requirements) • Governmental organizations • Regulated industries • Don’t be afraid to ask for data!

16. Conjectures on the Future of Empirical Management Accounting Research • It is increasingly difficult (and probably unnecessary) to distinguish between management accounting studies and studies in other accounting fields (financial, audit, tax, systems) • Corporate governance and risk assessment • Executive compensation • Disclosure policy and requirements (nonfinancial information, compensation and governance practices, etc.) • Value drivers/value relevance • Impact of financial accounting and tax rules on internal practices and decision-making • Integrated systems

17. An Example-- Current Governance and Control Practices • Clearly defined policy framework, policies, and procedures (58%) • Harmonized financial and management accounting (55%) • Well-defined framework for making and managing decisions (54%) • Risk management processes and tools (53%) • Harmonized internal and external reporting (52%) • Integrated strategic and operational planning (52%) • Performance management framework (48%) • Good visibility of accounting processes, systems, and controls (40%) • Appropriate controls embedded in all processes and supporting technologies (39%) • Accelerated reporting and close (39%) Source: IBM Business Consulting, 2003

18. Another Example– Information Technology • Top Managerial Accounting Initiatives • ERP implementation • New reporting software • New budgetary procedures • Financial consolidation • New analytic software • Outsourcing back office • Uses of Information Technology for Value Creation • Exploiting full functionality of ERP (19% today, 68% in three years) • Leveraging ERP data for performance management (22% today, 66% in 3 years) • Online processing (41% today, 63% in 3 years) • Web-based settlement (15% today, 35% in three years) • Intelligent scanning (straight to ERP) (10% today, 34% in 3 years) Sources: Ernst & Young (2003)and IBM (2003)

19. Conjectures on the Future of Empirical Management Accounting Research • Studies using multiple methods (e.g., quantitative and qualitative; analytical and empirical, etc.) • Company-specific field studies that incorporate both data analysis and institutional details/qualitative analysis • Topics at the interface of financial and managerial accounting • Greater focus on interdisciplinary research • Joint research • Publishing in non-accounting journals

20. Advancing Empirical Research in Management Accounting Christopher D. Ittner