Seeds of Innovation in Accounting Scholarship

1. Seeds of Innovation in Accounting Scholarship Greg Waymire AAA Annual Meeting Denver, CO Weds. August 10, 2011

2. Overview • The problem: Low innovation & stagnant evolution in accounting scholarship. • How did things get to be this way? • How sticky is the problem? • What’s the cost & why should we care? • What can AAA (i.e., “we”) do?

3. MAIN PROPOSITION • Innovation in accounting scholarship is too limited with the result being that our discipline is prone to conformist thinking and intellectual indolence. In short, accounting scholarly evolution is stagnant. • SYMPTOMS • Research is overly derivative. • Too much careerism. • Limited scholarly debate/discussion. • Too much reliance on standard-setters’ “needs” for research topics. • We think we know more than we actually know.

4. The Challenge Source: Hopwood, A. 2007. Whither Accounting Research? Accounting Review. (82: 5) 1367-1374.

5. EVOLUTIONARY CHANGE • Evolution: Change in some population-wide characteristic through time from ancestral population to a descendant population • Forces: • Selection: Disappearance of units in the ancestral population due to non-survival into the descendant population. • Transformation: Some units change their character over time. • Migration: New units present in descendant population that were not in the ancestral population.

6. EVOLUTIONARY FORCES

7. Present Evolution of Accounting Scholarship • Some ideas are disappearing, either because they are selected against or because they transform to be more like the others (i.e., black to either gray or white). • One category is replicating itself at a high rate. • There is no migration into the population. NET EFFECT: HOMOGENEITY IS A RECIPE FOR EXTINCTION!

8. How did things get to be this way? • Increasing accounting faculty salaries led to contraction in the number of assistant professor hires. • Fewer assistant professors coupled with higher teaching expectations from MBA rankings decreased resource allocations to research and PhD education. • In response, accounting groups focused their research emphasis to sustain benefits from critical mass. The primary focus became “financial archival” research to better align with finance, emphasis of standard setters, and journals’ increasing focus. • Quantified research quality assessment focused on citations and publication frequency in “A” journals has led to research focused more on “hot topics” and review articles rather than producing insights about fundamental issues.

9. Escalating Accounting Faculty Salaries A Simple Back-of-the-Envelope Calculation:

10. Declining Investment in New Assistant Prof Hires Distribution of Ranks at Doctoral-Granting Accounting at Three Points in Time: 1982, 1992, 2002 Table 3, Fogerty & Markarian (2007), “An Empirical Assessment of the Rise and Fall of Accounting as an Academic Discipline,” Issues in Accounting Education.

11. Number of 1985 vs. 2008 Tenure Track Faculty at Big 10, Pac 10, SEC & Big 12 Schools

12. Decline in PhD Grads from 1990 to 2008 From Hasselback2009 Directory of Accounting Faculty.

13. Increasing Focus on Financial Reporting Research U.S. Dissertations by Topic: 1995 versus 2005 Table 4, Tuttle & Dillard (2007), “Beyond Competition: Institutional Isomorphism in U.S. Accounting Research,” Accounting Horizons.

14. Quantified Scholarly Productivity

15. Accounting & Finance Journal Rankings Based on Impact Factors

16. Quantified Scholarly ProductivitySome Data on Reference per Article in TAR CITATION INFLATION!!!!!

17. Quantified Scholarly ProductivityA Benchmark from Science Magazine • Research Articles (up to ~4500 words, including references, notes and captions, or ~5 printed pages) are expected to present a major advance. Research Articles include…. about 40 references. • Reports (up to ~2500 words including references, notes and captions or ~3 printed pages) present important new research results of broad significance. Reports should include…. about 30 references. NOTE: The shortest article in May 2011 TAR (21 pages) had about 8,100 words exclusive of tables, figures, subheadings, and references.

18. Limited Innovation in Accounting ScholarshipHow Sticky is this Problem? • Very sticky, at least in the short-run. • Why? • People are tooled to produce a given type of research. Doctoral programs are geared towards producing more of the same. • Risk aversion among junior scholars is “rationally” high. • Limited forums for debate, replication, and challenging the status quo. • Departments will continue to hire what doctoral programs are turning out, which is geared increasingly to producing incremental financial reporting research. • Deans have strong financial incentive to hire non-tenure track faculty.

19. Limited innovation is an opportunity cost Example 1: Is accounting the language of business? • Is this anything more than a glib throwaway line in our textbooks? • If not, how is accounting a language? • Function • Form • Mechanisms for evolution & adaptation • Some encouraging signs – new work looking at the use of language in corporate disclosure. • Still, we are only beginning to scratch the surface on this issue, and much more is needed.

20. Limited innovation is an opportunity cost (cont.) Example 2: Are we homo accounticus? Neuronal Activation in the Ventral Tegmental Cortex Reported by Fiorillo et al. (2003) Based on Single Cell Recording for Two Macaque Monkeys in Response to Probabilistic Signals about Forthcoming Rewards Stimulus Sale Made Reward Cash Collected Stimulus Sale Made Reward Cash Collected Firing at actual receipt of reward when probability low Firing at signal of future reward when probability high

21. Limited innovation is an opportunity cost (cont.)? Example 3: Why is accounting present at the emergence of complex human civilizations?

22. Innovation in Accounting Scholarship IS THIS POSSIBLE? Heterogeneity via new ideas generated through transformation or reproduction of different types.

23. The Aspiration Source: Hopwood, A. 2007. Whither Accounting Research? Accounting Review. (82: 5) 1367-1374.

24. Can We Change Matters in the Long-Run?Planting Seeds of Innovation with Excellence. • 2011 AAA Strategic Retreat was focused on encouraging innovation in accounting scholarship • Several promising (preliminary) ideas surfaced at the Strategic Retreat • The Current Challenge: Continuing the Conversation • Publishing the output • Conversation with broad membership online and at meetings • Concrete proposals directed at issues that resonate with membership

25. AAA Strategic Retreat of May 2011: Focus • Assertion: Accounting research as of 2011 is stagnant and lacking in significant innovation that introduces fresh ideas and insights into our scholarly discipline. • Question: Is this a correct statement? If not, why? If so, what factors have led to this state of affairs, what can be done to reverse it, and what role, if any, should AAA play in this process?

26. Organization of AAA Strategic Retreat • Who was involved? • Four Speakers: SudiptaBasu (for Shyam Sunder), Chris Chapman, Bill McCarthy, & Don Moser • AAA Executive Committee & persons responsible for organizing 2012 Annual Meeting, Doctoral Consortium, and New Faculty Consortium • Format • Initial presentations by speakers followed by breakouts where participants moved between groups and tangible suggestions were put forth

27. Early Ideas from the Strategic Retreat in 7 Areas

28. Where to Next?Continuing the Conversation • Putting Strategic Retreat output into the public domain (posting presentations, write-ups on SSRN, and journals) • Establishing online venue in AAA Commons for discussion and debate by AAA members • Implementation for proposals that have broad support from AAA members.