Lecture 1 Introduction to accounting
research
Lecture notes
Introduction course
Three broader topics in this course:
1. Research questions, theory development and hypotheses
2. Research designs & econometric tools in accounting research
o Operationalization of research ideas
o Data collection
o Appropriate research designs for causal inference/identification (how do you
design your research in a way to be more trustable)
3. Implicitly covering in this course: general structure and presentation of a typical
(accounting) research paper
o Understand, assess and use research papers
o Preparation to write master’s thesis
During seminars, students will have to dive more deeply into research papers. Need to read
papers for its methodology, not for its specific subject.
The exam is for 100% of the final grade and consists of open questions. Need to study
lecture slides, papers from the reading list, additional material posted on Canvas. Could also
be provided an unknown paper during the exam that you’d need to interpret. No need for
books. Smith (2017) and Wooldridge (2020) could provide more useful back-up information.
Detailed exam guidelines will be provided prior to the exam.
1. Objectives in this course: understand the underlying logic of common tests in
research papers
2. Be able to interpret the results of these tests
3. Understand the intuition of common problems and potential remedies regarding the
validity of statistical analyses
Introduction accounting research
Accounting is part of the broader discipline of business economics (social science). Human
behavior & human decision making.
Accounting research refers to the use of quantitative & qualitative (financial) information by
economic actors.
Academic research looks at how accounting affects the world around us and how the world
affects accounting. As a result, it can provide useful information and insights for regulators,
auditors, tax consultants and other practicing accountants.
IASB often uses academic input for standard setting decisions.
Examples: IFRS,CSR resporting
Within many boards, academic input is being used. Also for providing insights for investors
(trading opportunities, financial statement analysis, predictions, fraud prediction and
ratings).
Different areas of accounting research, distinguish in roughly 3 streams:
1. Financial accounting research
a. How information is generated inside organizations and how it is provided
outside the organization. For instance, how financial statements are being
generated and publicated
2. Auditing
a. Sub-discipline to financial accounting.
b. How auditors actually audit financial statements and which auditing
characteristics can improve an audit.
3. Managerial accounting (MA)
a. Conceptually different
b. Deals with inside information. How economic agents act within organizations.
How compensation systems work for instance.
No unifying theory underlying the accounting research field. Most theories are borrowed
from related disciplines (finance, economics). This with applied focus on related
information.
Research is about the ability to:
1. Identify problems
2. Think in systems and disentangle potential mechanisms
3. Operationalize test settings to generate reliable evidence
4. Evaluate the results in order to generate predictions and recommendations
The skills above are equivalently important in management decision making.
Transferable skills you can develop from accounting research is data science. Corporate
decision making has gotten a quantitative turn in the past decades.
Accounting research:
- Based on theoretical models
- Interested in causal relationships
o Focus on endogeneity / internal validity
- Applying frequentist inferential statistics
o Obsessed with p-values
o V.s. Bayesian statistics
- Using structured data, and mostly normal-sized datasets
o Usually from commercial databases
The research process
The main part of this lecture: how to write a research paper. Most often theories are being
tested according to empirical evidence.
1. Formulate a research question
a. Probably the hardest part of the research. Requires creativity and academic
knowledge.
b. Closed (yes/no) questions are recommended
c. Positive (what is?), not normative questions (what should be?)
d. Often questions are about causal effects of two econometrics variables (X &
Y).
i. Do … increase .. quality?
e. Research questions are most interesting when there is some tension, or
uncertainty in the questions.
f. Are there reasons to expect that the two variables are NOT related due to
counteracting factors?
i. Or is the direction of the relation difficult to predict?
g. Obvious questions are not worthy of investigation
h. Real world examples (anecdotal evidence) often help in emphasizing the
relevance of a research question
i. The purpose of accounting research differs per each paper
j. How to identify good research questions for thesis:
i. Talk to practitioners
ii. Read news
iii. Identify within standard setters
iv. Identify unexplored issues within academic literature, find the gap
v. Think about whether the on-average results found in prior research
might be stronger or weaker for particular firms or in particular
settings
2. Literature review
a. Has it been done before by someone else? Or could you add something to
this research?
b. Start with published work in top-ranked core journals:
i. The accounting Review
ii. Journal of accounting research
iii. Journal of accounting and economics
iv. Review of accounting studies
v. Contemporary accounting research
vi. Accounting, organizations, and society
c. But also look at other area-specific journals
d. Work backwards – from the known to the unknown
e. Start with one or two key papers related to the topic
i. Key means top journals – heavily cited
f. Read papers that are cited by the above ‘key papers’
g. Also read the papers which cite the ‘key papers’
h. Add a search of current working papers that focus on similar or related hot
topics – but be aware of quality issues
i. Several issues:
i. The questions previous publications have (not) been examined
ii. The conclusions of existing research
iii. The theories that have been applied
iv. The areas of consensus and contradiction in the literature
v. Identify gaps in the literature that provide potential in future research
j. After having created an overview of the literature related to a topic, assess
whether it is possible to make a contribution to this literature.
i. Will the paper/thesis contribute to existing knowledge?
ii. And If so, how and why?
k. Reasons why research questions have not been pursued before?
i. Data available?
ii. No convincing research designs?
iii. Or is it simply too obvious/trivial?
iv. Be able to explain why some subject is interesting and worthy to be
researched
v. Simple replication is generally not interesting
3. Develop a theory
a. Critical reasoning: why?
b. Theorize: refine your research question into some theory.
c. Theories help explain and clarify the potential link between the concepts we
are interested in
d. It also explain logical flaws. In addition, theory can help us to specify more
specific predictions about what answer we might expect for the research
questions
e. Formal definition of such a theory: a logically coherent set of ideas that is
able to explain and predict empirical observations
f. We need a theory to have some justification for expecting a relationship to
exist, otherwise our research is only descriptive.
g. Most theoretical models in accounting research are based on
microeconomics and are descriptive in how individuals act under specific
assumptions
i. This is also called analytical accounting research
h. Common assumption in microeconomics is that all individuals act as rational
and utility maximizing economic agents.
i. This implies thatthat we only observe a specific action of an individual
if the perceived benefits of that action outweigh the costs
i. However, in the real world, people take actions that are not utility
maximizing. This is in contradiction to the assumption above.
j. Behavioral theories have emerged to explain such irrational phenomena
k. Conclusion: find a theory in order to make the problem within the research
question understandable.
4. Formulate hypotheses
a. A testable statement that summarizes the research question
b. Can be falsified or accepted according to research developed
c. Null hypothesis postulates the existence of NO relationship between X & Y
d. Alternative hypothesis postulates the existence of a directional relation
between X & Y
e. We can never prove that something is true, we can only, for the time being,
fail to show that it is not true
f. Good hypotheses are:
i. Unambiguous (ie clear stated)
ii. Simple
iii. Specify a specific relation between X & Y
iv. Are testable and implementable
g. Make sure you limit the number of hypotheses
h. Often one alternative hypothesis is sufficient
5. Design empirical test of the hypothesis
a. Come up with the empirical approach
b. Qualitative empirical studies: no formal testing, more descriptive evidence.
But great to triangulate other tests
c. Experimental research: lab experiments and observe how participants react.
This is pretty popular in management accounting research because there isn’t
much data available because it’s variable per company.
i. For financial accounting research this is less common because there is
public data available and more generic for the whole market
d. Surveys are a great way to gather information depending on the people who
are participating. Therefore still many flaws because quality may become
less.
e. Main way of empirical research is by archival sources. This on basis of large
data sums.
i. Focus of the rest of this course!!!
ii. Main challenge: develop generalizable credible inferences about
causal effects in the overall population from a sample of imperfect
data
6. Interpret results
a. Explain whether empirical tests show what the outcome is
Sources:
- [Link]/ub
- Google scholar
- Ssrn
Recap on how to structure research in general:
1. Formulate research questions
a. Is there a relation between X & Y?
2. Literature review
a. Can I make a contribution by conducting this research?
3. Theory and hypothesis development
a. Based on what theory does this research make sence
b. H1: X has a positive influence on Y
4. Data collection
5. Empirical analysis
6. Conclusion and implications
a. After results of the research
b. Research contribution
c. Ideally also practical implications/recommendations of the research’s findings
The above is also in line with the typical structure of a research paper:
1. A relatively long introduction that “sells” the research question and the contribution
of the research and explains broadly the research setting and the main results
2. A literature review (sometimes included in the introduction)
3. A more or less explicit section on hypothesis development that presents the
underlying theory
4. A description of the empirical research deisgn and the data
5. A results section around the main tables
6. A robustness test section that includes additional tests typically required by the
referees
7. A conclusion that again summarizes the results and the contribution of the take-
aways
For a well written paper, you should have a pretty good understanding by just reading the
abstract, the introduction and (maybe) the conclusion
Homework assignment:
- While reading the homework papers, try to answer the following question:
- 1. What is the research question?
- 2. Why is it important to answer this question (and its contribution for accounting)?
- 3. What are the theoretical constructs?
- 4. Is there a causal relationship? What is X & Y?
- 5. How exactly are these constructs operationalized?
- These above are only applicable for empirical papers
Post-lecture notes
Porter & Gordon, 2009:
Abstract:
The ability to read and understand academic research can be an important tool for
practitioners in an increasingly complex accounting and business environment. This guide
was developed to introduce students to the world of academic research. It is not intended
for PhD students or others who wish to perform academic research. Instead, the guide
should make published academic research more accessible and less intimidating so that
future practitioners will be able to read empirical research and profitably apply the relevant
findings. The guide begins by examining the importance of academic research for
practitioners in accounting and next reviews the basics of the research process. With that
background in place, we then give some guidelines and helpful hints for reading and
evaluating academic papers. This guide has been used for several years to introduce
master’s degree students to academic literature in an accounting theory class. After reading
this guide and seeing a demonstration presentation by the professor, students have been
able to successfully read and discuss research findings.
Summary:
Gap between academic research and practicing accountants. This paper helps to develop a
working knowledge of research that will enable us to gather useful information from
published papers and from every day statistics.
Agency theory: suggests that managers act in their own self-interest and put their own goals
ahead of the owners’ (shareholders’ ) goals. Therefore earnings manipulations occur.
Managers profit from information asymmetry, namely them knowing more than the
shareholders. For this issue, audits are effective.
Agency theory is derived from the broader economic utility theory. The utility theory
suggests that everyone wants to consume as much as they can for the lowest possible cost.
The best way to read an academic research paper is to start with the abstract, the
introduction, and the conclusion sections.
- Gap between academic research in accounting and its practitioners, which is a pity
- This (Gordon & Porter, 2009) paper will help master’s students to read and how to
evaluate academic papers with confidence.
- Academic research looks at how accounting affects the world around us and how the
world affects accounting
- The paper helps develop a working knowledge of research that will enable you to
gather useful information from published papers and everyday statistics
- The paper also helps provide a basic introduction to research methodologies that
will help gather useful information from academic papers.
The scientific method is the process that enhances advances in science:
1. Researcher observes a set of events and develops a theory or explanation of what
might be causing these events
2. Develop hypothesis and predictions what might happen
3. Design a set of tests to determine if the hypothesis is correct
4. The results either confirm or disconfirm the hypothesis
A good hypothesis comprises specific details of the sample they will actually test, what will
be tested and what the researcher expects to find. The hypothesis shouldn’t be in an area
that has been studied before, and needs to indicate a theory. The hypothesis should be
general in scope (applicable to any company). the hypothesis needs to be stated clearly and
with simplicity.
After determining hypothesis, a researcher start to identify data and sources and developing
appropriate tests to examine that hypothesis. This is probably most time consuming of
research.
Validity refers to how wel the test actually addresses the resarch question, and ensuring
validity is the most important part of designing the test. Internal validity refers to how well
teh study captures the cause-effect relationship.
All research studies can be classified as true experiments, non-experiments (examinations of
what currently exists) or quasi-experiments (providing some of the control of an experiment
while still retaining the real world power of a non-experiment. These are also called natural
experiments. This is limited to internal validity). Non-experiments and quasi-experiments
use real world data, they tend to have higher levels of external validity. External validity
refers to how well the results from a study can be applied to other settings, such as a
specific client or to other investors.
The use of control variables can greatly improve the study’s internal validity. By choosing a
control variable, using a quasi-experiment, a researcher can never be sure whether an
important variable is not omitted.
Reading a paper
Research papers in accounting typically follow a standard pattern which makes it easy to
find the most important aspects of a study and read them first.
If something smells a bit rotten, it probably is.
- While reading the homework papers, try to answer the following question:
- 1. What is the research question?
- 2. Why is it important to answer this question (and its contribution for accounting)?
- 3. What are the theoretical constructs?
- 4. Is there a causal relationship? What is X & Y?
- 5. How exactly are these constructs operationalized?
- These above are only applicable for empirical papers
