Research Papers Positive Accounting Theory

Research Papers Positive Accounting Theory-62
We conclude that this theory has generated several useful insights on managers' reporting decisions.In this section, we examine the forces and the publications that had a major impact on the emergence of PAT.

We conclude that this theory has generated several useful insights on managers' reporting decisions.In this section, we examine the forces and the publications that had a major impact on the emergence of PAT.

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The first form is the opportunistic form asserting that managers in electing accounting procedures react to maximize the wealth, and the second form is the efficiency form for good corporate governance.

PAT has been subjected to severe and numerous criticisms from different perspectives, which are critiques on research method, economics base, and reference to philosophy of science.

Academic studies on the factors that affect a firm's accounting choices triggered a paradigm change in accounting research, altering the nature of literature from prescriptive to predictive.

The construct of the new paradigm was first articulated by Ross Watts and Jerold Zimmerman with the publication of their revolutionary articles in —“Towards a Positive Theory of the Determination of Accounting Standards” in 1978 and “The Demand for and Supply of Accounting Theories: The Market for Excuses” in 1979.

In other words, their major aim is to explain and predict why managers and accountants choose particular accounting methods in preference to others.

Furthermore, they assert that firm's attributes, such as leverage and size, are predictive variables of the firm's accounting choice.It is said that PAT seeks to predict and explain why managers choose to adopt particular accounting methods in preference to others but says nothing as to which method a firm should use.We believe that PAT and its hypotheses will continue to be a rich field of empirical research and the basic questions that it raises are still relevant today.Another significant explanation of the PAT's development is the strong influence of several academic works on positive economic theory, efficient markets hypothesis, CAPM, agency theory, and capital markets researches (Table 1).Watts and Zimmerman aimed to develop an economic-based accounting theory and they advance an empirical methodology that focus on economics-based explanations and predictions of accounting practice.Our literature review is organized around ideas of PAT, its hypotheses, supporters and followers, and finally critiques of this theory.The remaining part of this chapter proceeds as follows: We first examine the forces that give rise to this theory.They gave rise to a huge literature of capital markets research [3].A significant number of academic publications investigated the determinants of the shift in paradigm from narrative to positive research. Howell published “Higher education for business” and Franck C.The positive accounting theory (PAT) relied in great part on work undertaken in economics and was heavily reliant on the efficient market hypothesis, the capital assets pricing model, and agency theory.PAT has led to a large amount of empirical studies.

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