A Framework of Research in Bar

BEHAVIORAL RESEARCH IN ACCOUNTING Vol. 23, No. 1 2011 pp.
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American Accounting Association DOI: 10.2308/bria.2011.23.1.1
A Proposed Framework for Behavioral Accounting Research

Jacob G. Birnberg University of Pittsburgh
ABSTRACT: Behavioral accounting research BAR is richer today, in the topics covered, the methods used, and the range of sub-areas of accounting in which it is performed, than ever before. This paper offers a framework within which BAR literature can be viewed as a whole rather than in segments, such as by accounting sub-areas or by research method. The framework classies BAR by the focus of the research: the individual, group, organization, or the society within which accounting exists. The purpose of the framework is to help researchers in BAR to appreciate the insights to their research questions that can be found in BAR using another research method or studying a similar issue in another sub-area of accounting. Existing research in each of these four areas is discussed to illustrate the usefulness of the framework. In addition, behavioral research in other disciplines that could impact BAR and areas of potential future research are discussed. Keywords: behavioral accounting research.
INTRODUCTION n the 20 or so years since Birnberg and Shields 1989 reviewed behavioral accounting research BAR, the area of applied behavioral research in general and BAR in particular has burgeoned. The BAR literature has grown in breadth, depth, and complexity. This change reects an important trend in BAR: the reference disciplines and the object of accounting and nonaccounting behavioral researchers have broadened. The behavioral decision-making and cognitive psychology literatures that stimulated a signicant portion of the emerging BAR research up to the late 1980s continue to have a signicant inuence on BAR e.g., Camerer 2001. In addition, the role of behavioral research has grown in other social science disciplines. Experimental economics has moved into the mainstream e.g., McCaffery and Slemrod 2006. This literature has had an impact on BAR Moser 1998; Callahan et al. 2006. Legal researchers, heavily inuenced by the writings of Kahneman and Tversky e.g., Kahneman and Tversky 1979, have begun to actively pursue behavioral issues see Sunstein 2000. A strong behavioral school even has developed within nance e.g., Thaler 1993; Barberis and Thaler 2003. Medical researchers have joined with behavioral researchers to investigate
The author thanks the two reviewers for their insightful comments, the editor for the paper, Bryan Church, not only for all his help, but also for his patience, and numerous colleagues for their help along the way. A dagger at the end of select references indicates a review of the literature or a paper that includes an extensive set of references.
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issues such as how individuals react to prospective changes in the state of their health Udel et al. 2005. Even philosophy has developed a set of experimental researchers Knobe 2003; Appiah 2007 and a journal. Emerging methods for researching old questions are altering the form of behavioral research, such as neuroeconomics Knudsen et al. 2007. These new tools permit researchers to go beyond the observed behaviors of the decision makers and penetrate the black box: that is, observe the brains activity during decision making. Finally, these new behavioral researchers include economic modelers who have developed richer models of economic decision makers economic man intended to explain behaviors such as cooperation e.g., Rabin 1993, 1998, and empiricists who have utilized aggregated data to test these models e.g., La Porta et al. 1997; Ittner 2007. The burgeoning of BAR and the expansion of disciplines that in one form or another have added behavioral as an adjective to one of their sub-disciplines has enriched the extant research on which BAR can draw e.g., Dickhaut et al. 2003; Hannan 2005. However, the increased interest and diversity of methods used to research behavioral issues also leads to a blurring of the denition of behavioral research in general and the boundaries of BAR in particular. What was relatively clear 20 years ago is less clear today. The proliferation of research methods has meant that BAR is more than laboratory experiments, surveys, and the occasional eld study. A variety of archival databases have been used to investigate essentially behavioral issues Banker et al. 2000b; Ittner 2007. Even efcient markets researchers, who would not be considered part of the BAR community, are identifying and researching issues that clearly are intended to understand individual investors behaviors: most notably, anomalous behavior relative to the predictions of the efcient market Sloan 1996. This blurring of boundaries between research thrusts has led to an often unrecognized degree of commonality across BAR thrusts. While this has obvious potential benets that will be discussed latter, it means the boundaries used in this paper necessarily are arbitrary and subjective. In general, the questions studied and the papers cited will be related to the actual behavior of people, whether it is as individuals or collectivities of varying degrees of size or complexity e.g., groups or organizations, as they interact with each other and/or their environment. The test used in this paper is analogous to one offered as an operational denition of obscenity: We know BAR when we see it. At the margin different people will draw the line in different places. However, there is little disagreement in the core of the research. Given the growth in BAR, any attempt to provide a detailed review of BAR in general would lead to a paper far beyond one this author could be expected to competently produce. Moreover, recently a signicant number of specialized reviews have been published offering the potentially interested reader a wide variety of in-depth studies of BAR by both research topic e.g., auditing, management accounting and research method e.g., laboratory experiments, eld research. These reviews are cited in this paper where appropriate and review papers, or those with particularly useful reviews of the literature, are identied in the reference section of this paper. What would appear to be needed at this point in time is a framework within which the reader can integrate the diverse studies making up BAR. To do this, I will present a framework that focuses on the reference group of the studies, highlighting examples of research conducted in each focal domain using different research methods and from different accounting sub-elds within BAR. This approach not only is more parsimonious, but also permits the highlighting of a critical facet of any research: complementarities of BAR across accounting sub-elds and methods. For example, a paper dealing with audit teams may inform researchers interested in teams in management accounting, and a eld study may provide a laboratory researcher with the insight needed to design a better experiment.
Behavioral Research In Accounting American Accounting Association
Volume 23, Number 1, 2011
The paper consists of six sections. The rst provides an overview of the paper and the framework used. The second through fth sections discuss each of the broad categories of studies in the framework. The nal section offers a brief summary of the paper. ORGANIZATION AND SCOPE OF THE REVIEW The approach used in this paper to categorize BAR is the behavioral unit that is the object of the research. Does the research study the behavior of an individual, group, etc.? Organizing studies in this manner highlights the similarities across otherwise diverse studies and is intended to facilitate intellectual exchange among accounting researchers. To do this, I must necessarily restrict the depth of the review in any section to accommodate the desired breadth of coverage. The framework is described in the next section. Like BAR, the boundaries between these categories at times are subjective. For example, a paper may cover issues appropriate for understanding both groups and organizations Anderson et al. 2002. Framework I have elected to view the extant BAR by what I have labeled its focus. I dene focus as the unit used to analyze the research questions. The units range from the study of individuals to the study of the environment that acts upon accounting or that accounting helps to shape. The four categories used in this review were selected because they dene distinct sets of research questions.1 The categories include: individuals, small groups, organizations, and environmental conditions. Because a studys classication is determined by the set of individuals it considers in the research questions and/or the analysis, the categories can be viewed as constituting a series of concentric circles, with the innermost circles representing the more micro studies. The outer rings represent more macro studies reecting the broader focus of the research questions. The environmental conditions category can be interpreted as the world within which all other events occur. Two important points should be noted. First, within the categories, particularly the individual category, there may be sub-categories. Second, studies from one category may inform studies in another, likely adjacent category. Denition and Discussion of the Categories Individuals. These studies focus on the characteristics of a single actor and/or that actors response to a particular accounting data set, accounting-related stimulus, or accounting-related setting. It is by far the most active of the BAR categories discussed in this paper and can be viewed as consisting of its own sub-categories. One line of individual research can be characterized by a concern with how individuals solve problems. I label these pure choice studies because they focus on how well any actor can solve a problem without consideration being given to the behavior of other actors. Recently, many of these studies have investigated the manner in which the economic model economic man in some signicant way does not t the behavior we observe. The second line of research explicitly considers the role of strategic behavior in the actors
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This organization is similar to Hopwoods 1976, 5 Figure 1.1 describing the social context of accounting. He had four categories: individual needs, group pressures and control, organizational structures and control strategies, and the social economic environment. The organization used here differs from Hopwoods by recognizing differences within the group pressures and control categories between individuals and groups. This reects changes in BAR over the decades.
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Volume 23, Number 1, 2011 American Accounting Association
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decision. In these studies the actor explicitly should consider the behavior of a second actor who actually is present in the setting. These studies would include negotiation e.g., Fisher et al. 2000 or cheap talk e.g., Zhang 2008. I label these strategic studies. Groups. Research classied as covering groups includes those studies where the relevant unit of analysis consists of a small number of individuals. Typically, the members will be viewed by the organization as afliated i.e., as acting in concert in some signicant way. Thus, what differentiates group research from research studying participants individually or strategically interacting in dyads is the afliation of the members. The actors are assumed to be in the same unit at the time of the study. This would exclude studies such as those where the individuals are located in different levels in a hierarchy. It is distinguished from research on organizations on two dimensions. One is pragmatic. Groups are small enough to permit the researcher to study the interaction among the multiple participants. As the size of the group increases, researchers nd it more difcult to create and/or analyze the interactions process and the focus of the research shifts from the members of the group/organization to the organization itself. The other distinction is the focus of the research. While group research is concerned with the activities of the groups members, organization research is concerned with the role of policy or the effect of characteristics of the organization or its environment on the organizations accounting policy or the organization as a whole. This reects a higher level of aggregation where the behavior of the individuals is lost. For practical purposes the upper limit of group research usually is relatively small, typically four. Organizations. As noted above, the focus of this research is on the characteristics of the unit. The entity studied may be described by the legal boundaries of a rm or a division within a larger entity. The research question often is the role played by structural characteristics such as task complexity or the organizations accounting system design. These studies move us farther away from the characteristics of the individual discussed in the two previous categories. It identies the individuals/groups that compose the organization by the roles they occupy rather than by focusing on the characteristics/actions of the individuals who occupy them. Environmental conditions. These studies examine the role of accounting in society. Studies included in this category reect the interaction between accounting and society: that is, the broader world of which accounting is a part. The interaction can take the form of the external forces that shape accounting, as well as studies of the role accounting has played in shaping the world in which we live. The former may be closely related to BAR studies in organizations. For example, Prime Minister Margaret Thatchers intention to privatize British Rail affected the relative roles of accounting and engineering within the organization Dent 1991, or the potential impact of the whistleblower provisions of Sarbanes-Oxley Hunton and Rose 2010; DeZoort et al. 2008. How the institution of standards for outputs led to the establishing of standard sizes for clothing Jeacle 2003a is an example of how developments in accounting standard costs can lead to changes in the environment standard sizes. INDIVIDUALS The earliest BAR studies across all accounting areas were of this type and it continues to be the dominant form of BAR. Shields 2007 reported that 90 percent of the papers published in BRIA from 2004 to 2007 studied the behavior of the individual. As noted earlier, studies of the individual are of two types: individual choice studies and strategic studies. While the two share a common core of issues such as the selection of participants and the research methods utilized, they are signicantly different in many other ways. Thus, this section of the paper is organized in a slightly different manner than those discussing the other elements of the framework. The rst sub-section discusses issues common to both. The second sub-section discusses elements specic to individual choice studies, and the third sub-section does the same for strategic choice studies.
Common Issues The two types of individual choice studies share many common features. These include the research method selected and the choice of participants. Each of these is discussed below. The section also discusses differences between the traditional economic model of self-interested behavior and recent ndings in the areas of interpersonal utility, trust, and cooperation found in this research. Research Methods The individual choice studies consist predominately of experiments, though some utilize surveys Shields 2007. Experiments are particularly appropriate when the relevant dimensions of the decision environment in which the decision maker interacts with the stimulus and makes the decision are well known. Experiments have been used in BAR to examine a wide variety of questions, including internal policies, external policies, tax reporting policies, incentive systems, various types of resource allocation decisions, ethical issues, and various types of reports. The responses measured have varied from objective outcomes such as investment decisions Libby and Tan 1999 to more subjective perceptions such as fairness Evans et al. 2005 or trust Coletti et al. 2005. Overall, studies of this type are the predominant form of research in BAR, particularly North American BAR, and can be found across a wide variety of topics, accounting sub-areas, and settings. Individual choice studies also utilize surveys e.g., Chalos and Poon 2000; Clinton and Hunton 2001 and archival data e.g., Banker et al. 2000a. Archival studies often reect a naturally occurring experiment that permits the researcher to study behavior before and after the change stimulus has taken place. Participants A signicant shift has taken place in the nature of the participants used in experimental studies. Participants in the early studies most often were students undergraduate business majors and/or M.B.A. students. BAR studies of the individual over the past two decades, however, have required and utilized professionals as participants to a far greater degree. This is a signicant difference from the disciplines from which BAR draws its theories e.g., psychology, where the generic participant remains the norm. This reects the differences in the two groups reference populations for external validity. The use of professionals as participants became necessary when BAR shifted from its initial focus of how participants respond while playing a particular role to whether the skills accumulated by professionals insulate them from the negative effects of heuristics and biases when performing complex tasks e.g., Libby and Trotman 1993; Kennedy 1993. Students cannot simulate that accumulated experience or professional knowledge, nor can a mundane experimental task provide insight into the professionals work. The use of professional participants in BAR implicitly assumes that the professionals behavior in an experimental setting accurately reects their behavior on the job. Fehr and Leibbrandt 2008 address this issue. They examine the cooperating behavior of shermen both in a laboratory trust experiment and their level of cooperation to avoid over-shing a given area. They nd that the participants behavior in the experimental setting accurately predicted their work behavior. The broadening of the issues covered by BAR has expanded the type of professional participants required. The revival of interest in nancial BAR now requires participants possessing accounting expertise. BAR investigating proposed changes in the accounting rules requires sophisticated/expert participants to test the validity of the hypotheses and enhance the studys external validity e.g., Hirst and Hopkins 1998. This also is true of BAR investigating anomalies
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found in archival nancial accounting research to generate BAR hypotheses e.g., Joe 2003,2 as well as studies of the behavior of information providers in nancial markets, such as security analysts e.g., Libby and Tan 1999. However, many nancial accounting-oriented BAR studies continue to utilize M.B.A. students as surrogates for the nave investor e.g., Tan and Tan 2009. For a review of these studies and a discussion of the issues, see Libby et al. 2002 and Koonce and Mercer 2005. An exception to the use of professionals as participants is found in experiments in management accounting. What we have learned from use of auditors and investors as participants would suggest that manager participants likely would exhibit many of the same cognitive biases as student participants e.g., Kennedy 1993; Gilad and Kliger 2008. However, this comparability may not carry over to activities such as budgeting behavior and negotiation. See Vance et al. 2008 for an auditing example. Some researchers utilizing student participants attempt to compensate for the participants lack of expertise by measuring participants task-specic knowledge e.g., so many courses in accounting or years of work experience. They also use measures of the participants general problem-solving ability, such as SAT or GMAT scores or responses to selected questions from tests of that type e.g., Dearman and Shields 2005. For a nonaccounting study, see Burks et al. 2008. These measures typically are used to identify potentially relevant differences among inexperienced participants i.e., students. However, Dearman and Shields 2005 use their problemsolving ability measure as an independent variable to explain why some participants exhibit nonxated behavior while others did. One topic related to the selection of participants in which BAR has shown less interest than others of decision making-oriented research is gender differences. Non-BAR strongly suggests that this may be an issue. These studies have reported signicant gender-related differences in areas such as risk taking e.g., Jacobsen et al. 2007; Huang and Kisgen 2008, competition e.g., Gupta et al. 2005, and negotiation behavior e.g., Bowles et al. 2007. All these areas can be important in BAR. Those BAR studies reporting the presence or absence of gender-related differences in observed behavior have utilized these data in one of two ways. One uses the participants gender as an independent variable e.g., Johnson et al. 1998. These studies investigate the conditions under which the participants gender could affect behavior. If gender differences exist, randomization may obscure their effects. Other studies check for gender differences to be sure that they do not confound the experiments results e.g., Booker et al. 2007; Fleischman et al. 2007. Future BAR may show greater awareness of the issue since SSRN in June 2009 established an ARN for Demographics, Gender, and Diversity Accounting Abstracts. Because of the limited research, it is an open question whether gender is as relevant an issue when professional participants are used as it is in other studies. Do their professional training and experiences override any gender issues? Two studies suggest that the differences may persist. Chin and Chi 2008, using archival data from Taiwanese audits, found that female auditors are more risk-averse and more ethical in evaluating clients accruals. A survey of U.S., German, Italian, and Thai fund managers Beckmann and Menkhoff 2008 found what they describe as the expected gender differences: female respondents are more risk-averse and exhibit greater aversion to competition. Noneconomic Dimensions Affecting the Individual In what could be labeled post-modern BAR, a line of research focuses on the appropriateness of two assumptions in the traditional economic model. One is that self-interest is the sole
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In an interesting twist, Allee et al. 2007 used archival nancial accounting data to provide convergent validity for BAR hypotheses.
motivator of choice; the other is the use of monetary outcomes as the sole basis for measuring the utility of an outcome. While it is possible to integrate these arguments into the utility function e.g., Birnberg and Snodgrass 1988; Luft 1997; Casadesus-Masanell 2004, BAR tends to view these dimensions as if they are constraints on the individuals wealth-maximizing behavior. Typically, BAR studies of this type bring together literature from psychology and experimental economics. They stress that rather than behave in a self-interested manner, individuals conform to certain social norms such as fairness, equity, trust, honesty, or a willingness to cooperate. For a discussion of these issues, see Camerer 2001, Rabin 1993, 1998, Fehr and Gaechter 2000, Fehr and Schmidt 1999, Moser 1998, Evans et al. 2001, Evans et al. 2005, and Dawes and Thaler 1988. Another dimension related to fairness and equity but not explicitly discussed in BAR is egalitarianism Dawes et al. 2007. Overall, these studies are important for BAR for two reasons. First, they show how little it takes for the participants to exhibit non-self-interested behavior. Second, they show the importance of the individuals perception of equal/fair treatment relative to his or her peers and how they respond to a lack of perceived equity/fairness. Trust is of interest to behavioral researchers of all types Rousseau et al. 1998; Sapienza et al. 2007. In BAR, Rose 2007 examined how managements nancial reporting behavior affected the investors willingness to trust them. Evans et al. 2001 focus on the individual in a management accounting environment and show that individuals will behave honestly in a setting where their dishonest behavior would not be detected, thereby violating the self-interest assumption. As a possible explanation of this type of behavior, Rutledge and Karim 1999 found that those participants who did not exploit their asymmetric information in a principal-agent setting scored higher on ethical development than those who did. Their research and many other papers suggest that non-totally self-interested behavior is the norm or default behavior for many individuals and in many settings, rather than the self-interested behavior postulated in traditional economic theory. A possible explanation for this behavior is their perception of whether they were treated fairly e.g., Greenberg 1990; Hannan 2005. These ndings can lead to interesting research on the individuals response to their absence of fairness. Remindful of Lucy van Pelt and Charlie Browns ongoing relationship over his kicking the football, Bohnet and Zeckhauser 2004 report that decision makers exhibit an aversion to betrayal and take actions to avoid it. Wang 2007 examines the symmetry between the punishment for dishonesty and the reward for honesty. She nds that honesty is rewarded more generously than dishonesty is punished. Issues of this type can be related to resource allocation in managerial accounting and client behavior in auditing. In both cases, the research question would involve identifying which behaviors lead to trust or distrust between the parties. What causes an auditor to trust one client more than another? What causes a superior manager or auditor to trust a particular subordinate? Any trust-oriented research raises at least two questions related to experimental design. One is the importance of the experiments context degree of realism and the choice of participants students or professionals used in the study. The other is the importance of the presence or absence of the interaction with a real person when the participant is told of the existence of another participant. The latter issue is discussed under strategic choice situations. Culture and Its Impact on Decision Makers BAR studies dealing with social norms and potentially differing values across cultures ask whether differences in culture result in different decisions/behaviors. For the most part, these studies have utilized the framework of Hofstede 1980. However, it is important to be aware that some issues have been raised about the appropriateness of his categories e.g., Baskerville 2003; McSweeney 2002. Because of the readily apparent cultural differences, the greatest portion of this research has compared Asian and North American workers e.g., Birnberg and Snodgrass
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1988; Chow et al. 1999. Thus far, the studies are inconclusive. While some of the studies have found differences consistent with their predictions e.g., Kachelmeier and Shehata 1997, others have not Birnberg et al. 2008. In an interesting archival nancial accounting study related to BAR, Doupnik 2008 nds inter-country differences in earnings management after allowing for differences for legal regimes. The potential role of national cultures is becoming more important as BAR internationalizes and research ndings reported by researchers from many different countries appear in journals and SSRN. This raises the following question. Are research ndings from one country universally applicable or should we be concerned and replicate them before we accept their universality? As management systems and styles internationalize in large, industrialized economies, it may mitigate concerns over cross-cultural differences. However, this homogeneity may not be present in small-scale economies. In contrast to results reported in some BAR, Henrich and the Cross Cultural Ultimatum Game Research Group conducted an extensive study across 15 smallscale economies. Their study is important because they examine behavior among economies where the variation in economic development is far greater than those typically studied by BAR. Using the dictator game and a social dilemma game, as well as the ultimatum game, they report that the textbook economic model failed to predict the observed behavior. Their results are reported in various forms Henrich et al. 2005, 2001, as well as in Henrichs 2007 plenary address at the AAAs 2007 annual meeting. They conclude behavior in the experiments is generally consistent with economic patterns of everyday life in these societies. Henrich et al. 2001, 7374 report that, The higher the degree of market integration in their society and the higher the payoffs to cooperation in their society, the greater the level of cooperation in experimental games. Summary While the methods used to study individual behavior have not changed signicantly since Birnberg and Shields 1989, BAR has paralleled the trend found in experimental economics. A signicant portion of BAR now focuses on factors that inuence decision makers in directions at odds with the self-interest and wealth-maximizing assumptions. These noneconomic dimensions include trusting behavior, cooperation, and the expectation of a fair share of any rewards. In certain settings this can lead to greater monetary returns to the decision maker. However, they also can expose the decision maker to greater risk. Other characteristics of the work environment, such as the national/local culture, also can affect the expectations and behavior of the decision maker. It has been suggested that certain of the cultural differences observed in individuals may be based on different market conditions among countries. Individual Choice Studies There are a variety of reasons for the popularity of individual-focused research in BAR. The rst is simplicity. Considering the individual investor, auditor, etc., in isolation lends simplicity to both the studys research model and its design. It also simplies the analysis and interpretation of the results. The second is parsimony. It takes the fewest number of participants to achieve the desired number of observations per cell. This is especially important when the participants are professionals. The third reects the models generated in the disciplines on which BAR has drawn most heavily economics and psychology. Both contain a signicant literature relating to how the individual makes a decision. Sociology and organization theory consider the group to be the smallest unit and have been drawn on by BAR to a signicantly lesser extent. Individual choice studies in BAR can be divided into two types, depending on the type of variable investigated. One group of studies is interested in better understanding the impact of
elements of the setting within which the individual acts on the individual. The other is concerned with the appropriateness of rational wealth-maximizing characterization of the decision maker. Factors Related to the Task Setting Four elements of the task setting are of particular interest in individual BAR. These are incentives, participation, accountability, and systems interface. The rst two are the focus of a signicant portion of BAR; the latter two, much less. Incentives. Chow 1983 initiated experimental research on the role of incentives in BAR. This line of BAR literature typically uses the principal-agent model to generate hypotheses. For a survey of the economic models of incentives, see Prendergast 1999. In general, the studies report that incentives matter and the nature of the incentive system impacts an agents behavior e.g., Bonner et al. 2000; Towry 2003; Sprinkle et al. 2008. Participation. Participation is, essentially, concerned with the honesty of communication within the organizational hierarchy. Early BAR investigated how accurately the workers/agents would communicate their private information. Would they use it to create slack? Generally, the answer was yes e.g., Young 1985; Shields and Shields 1988.3 However, as discussed subsequently, later research recognized the strategic nature of the interaction between the subordinate and the superior and modeled participation as a negotiation process. Accountability. Given the function of accounting, it is surprising that the formal development of accountability was in psychology see Lerner et al. 1998 for a review despite the obvious link to management accounting research; that is, the effect of evaluation on individual behavior e.g., Argyris 1952; Prakash and Rappaport 1977. The notion of evaluation in BAR is not limited to management accounting. When the superior in an audit team examines the work of a subordinate or a client examines the work of a tax professional, an evaluation is taking place. The difference between the evaluation literature and BAR on accountability is reected in the breadth of the questions they ask. The evaluation literature focuses on how the accounting system e.g., the performance indicator affects the extent and direction of the effort provided by the workers Prakash and Rappaport 1977. Accountability BAR not only asks for what the worker feels accountable, but also asks to whom the worker feels accountable when facing conicting demands e.g., Johnson and Kaplan 1991; Messier and Quilliam 1992, or how elements present in the accountability setting e.g., a need to justify ones actions affect the workers behavior Ahrens 1996. Miller et al. 2006 recognized that there is an element of mutual accountability in the evaluation process. The superior likely has a prior relationship with the subordinate and in many instances must justify any evaluation he/she makes. Their study focuses on the reviewer in an audit setting. While the study only examines one party to the dyad, their ndings suggest that factors such as familiarity between the two parties can affect the reviewers assessment. There may be limitations on the ability to perform these experiments with professional participants in dyads because of the potential impact on the participants post-experimental relations. Systems interface. Information systems in BAR essentially are viewed as decision aids. They are discussed under various labels, such as decision support systems DSS and knowledge based systems KBS. The DSS typically is used in the management information systems literature to describe an information system intended to support a specic decision and is closest to the term decision aid DA, which typically is used in auditing to describe what may or may not be a computerized calculating system. In contrast, the KBS refers to a database collected for a specic
Those familiar with the dictator game discussed below will recognize that Youngs 1985 task is essentially the use of a dictator game to simulate participation.
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area of inquiry e.g., XBRL. The simpler of the two is the DSS. Two broad questions are researched under DSS. How well are the systems utilized by those for whom they are intended? And, what characteristics of the DSS facilitate or inhibit their utilization? Specic issues researched under the former include not only whether the DSS improves decisions, but whether the potential users utilize them and whether the system can be used to facilitate learning. They differ from the individual choice BAR studies discussed earlier i.e., that examined how the individual responds to specic outputs of the system. Those studies typically are linked to cognitive issues and the use of accounting data e.g., Lipe and Salterio 2000; Dearman and Shields 2005. The papers discussed in this section are concerned with the utilization of a DSS as a DA designed to assist an individual perform a specic task. In general, they report that the DSS is not always utilized e.g., Whitecotton 1996; Eining et al. 1997. Whitecotton 1996 found that auditors reliance on the DA was inversely related to their condence in their own judgment. Obviously, this raises two questions. Is the auditors condence appropriate? And, how do those using the DA perform relative to the best auditors? Rose and Wolfe 2000 shed some light on the second question. Using student participants and a tax calculation task, they report participants who performed the calculation using pencil and paper rather than the DA outperformed the best DA-assisted group by 22 percent, but required 112 percent more effort Rose and Wolfe 2000, 297; also see Glover et al. 1997; Borthick et al. 2006. It is important to learn whether the results can be replicated with professionals because it is likely that their judgment is superior to that of the students. Arnold et al. 2006 studied the type of data from the KBS used by relative novices senior/ staff auditors and relative experts partner/manager. The two groups differed on several dimensions. Novices chose feedforward explanations, while the experts chose feedback. Arnold et al. 2006 report that the greater the experts reliance on feedback explanations from the KBS, the greater their adherence to the KBS recommendation. There also are interactive systems intended to facilitate access to larger databases. These DSS are intended to improve the quality of decision making or assist in training. The issues considered revolve around the usefulness of the database. In BAR, the issue typically can be framed in terms of the behavioral characteristics of the user and the usefulness to the user of the DSS. The XBRL is an example of such a system. It is intended to enhance the users ability to obtain and understand nancial data about the rm. Hodge et al. 2004 found that nonprofessional users of nancial statements were better able to ascertain the impact of differing reporting methods for stock options between rms using the XBRL than without it. However, like Rose and Wolfe 2000, they reported that many of their participants did not utilize XBRL. Other BAR has as its purpose examining the use of DSS as a tool for training/educating novices. Alternative modes of communicating information, such as graphs, frequently are used in reports. For example, nonnumerical formats are regularly used in corporations annual reports, internal reports, and our research. This issue initially was asked by MIS researchers in the 1970s Dickson et al. 1977 and subsequently extended e.g., Vessey 1994. Despite the extensive use of pie charts and graphs in internal and external reports, there is little research in BAR on this topic for an exception, see Amer 2005. In marketing, MacKay and Villarreal 2007 found that the recipients ability to take advantage of the simpler nature of nonnumerical data is likely to vary among individuals. An interesting example of earlier research in this area, using faces to communicate nancial data, was reported by Moriarity 1979. Noneconomic Dimensions Affecting the Individual The above dimensions of the task are essentially elements of the task setting in which the individual makes a decision. They typically are set by the organization or environment within
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which the decision maker is operating. The decision maker also brings certain characteristics such as trust and fairness to the setting. These characteristics may be relatively stable for any decision maker e.g., desire to be treated fairly, or they may vary with the situation e.g., the decision makers mood. In this section, these characteristics as they relate to individual choice are discussed. Ethics. Closely related to the study of norms is the study of ethical behavior. The former often is researched in the context of what others expect the actor to do, while ethical behavior typically refers to the actors behavior. Noreen 1988 offers a theoretical link between ethics and agency theory. He argues that parties to the contract could be expected to follow social norms. Early BAR on ethics focused on the participants moral development e.g., Ponemon 1990. These studies are concerned with two issues. How developed is the moral reasoning of particular individuals/groups? And, how does a given level of ethical development affect participants onthe-job behavior? These two questions can easily be adapted for BAR in any of the accounting sub-areas. The broader issue is how signicant the ethical issue is in that sub-area. Auditing researchers have led the way in considering the role of ethics in BAR. For reviews, see Louwers et al. 1997 and Jones et al. 2003. Like the cross-culture research described earlier, the ethics-based research has been characterized by issues over how to measure the level of ethical development/behavior of the participants. This is not surprising since, like culture, the level of an individuals ethical development is not observable as distinct from actions. For a discussion of the different approaches, see Cohen et al. 1996. In a post-Enron world, BAR in both auditing and management may nd the issue of increased importance. The problem facing the researcher is likely to be one of access. To minimize the degree of intrusiveness and obtain responses, this research typically relies on surveys or cases to elicit responses. There also appears to be a reluctance to publish these papers in the mainstream accounting journals. A signicant number of BAR studies have been published in The Journal of Business Ethics e.g., Arnold et al. 2007; Emerson et al. 2007. Two tax-oriented ethics studies suggest possible studies for management accounting behavioral researchers. Fleischman et al. 2007 demonstrate the linkage across the various aspects of individual-focused research. The paper examines the evaluation by managers in a case concerning the ethical behavior of a spouse in the context of a tax setting innocent spouse rule. The paper explores the potential existence of the innocent spouse rule as a norm and the extent to which research in ethics by behavioral scientists can explain it. Similar studies might be conducted in management accounting. They could relate the participants response to the ring of an innocent manager and, for example, the participants predicted subsequent job behavior. This behavior relates to the issue of perceived fairness discussed earlier. In the area of nancial accounting, Rose 2007 related how what could be labeled unethical reporting by management leads to distrust on the part of investors. Cruz et al. 2000 report that tax professionals willingness to resist the clients desire for aggressive tax reporting is positively correlated with professionals score on the Multidimensional Ethics Scale. This raises the question of how a subordinate might respond to a superiors efforts for a more favorable set of budget estimates. Would a measure of ethical development predict the likelihood of cooperation? In an experiment in nancial reporting, Vance et al. 2008 hypothesized and found that the better the superior-subordinate relationship, the less likely the subordinate was to resist the superiors request for aggressive nancial reporting. Two sets of BAR studies have extended early BAR on ethics in interesting ways. They examine the impact of the individuals environment on the individuals ethical behavior. Booth and Schulz 2004 examine the impact of the organizations ethical climate on the individuals behavior. In a laboratory study, they nd that holding the participants level of ethical development
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constant, the behavior of the participant moves in the direction of the organizations ethical climate. There is no reason to believe that similar results would not be found in the effect of the permissiveness of audit rms on auditor behavior. Spicer et al. 2004 and Bailey and Spicer 2007 linked cross-cultural research and ethics. Earlier studies had reported ethical differences among auditors in different countries e.g., Patel et al. 2003; Arnold et al. 2007. Spicer et al. 2004 and Bailey and Spicer 2007 researched the ethical norms of a culture on individuals raised in a different culture. In their studies, they studied U.S. expatriates in Russia involved in the Russian business community. They report convergence in ethical attitudes and intended behaviors between U.S. expatriate and Russian respondents to their ethics survey. The U.S. expatriates in their study responded more like their Russian counterparts than U.S. nationals in the U.S. The respondents also expressed similar attitudes toward organizational practices that violated the ethical standards or hyper-norms. The U.S. expatriate respondents who were highly integrated into the Russian community expressed ethical attitudes similar to those of Russian respondents under conditions of local Russian norms. In both cases, the ethical attitudes of Russians and Americans converge despite the differences that might have been expected to arise due to their respective national identities. Mood. Recently, psychologists, experimental economists, and accountants have begun to examine the role of the decision makers emotional state affect on the decision process. These studies could be important if different mood states affect the decision makers perceptions and decisions. While mood could affect strategic interactions, the research undertaken in BAR thus far has focused on the individual decision maker. The rationale underlying studies of this type is that mood affects the nature of the prior experiences retrieved from memory. Positive mood states lead to retrieving positive outcomes in comparable situations and vice versa. Wright and Bower 1992, in a BAR-related study, reported the effect of decision makers emotional state happy, neutral, or sad on their perception of the degree of riskiness of a decision and probability of success. As they conjectured, the subjective probability estimate is inuenced by the decision makers mood. Happy decision makers give higher probabilities for the outcome of positive events and lower probabilities for the outcome of negative events. They report the opposite results for sad decision makers. In an accounting context, Moreno et al. 2002 and Kida et al. 2001 report similar results. Consistent with these results, Chung et al. 2007 studied auditors making inventory valuation decisions and nd that mood state affects the degree of conservatism in the auditors inventory valuation. Auditors in a positive mood are less conservative than those in a negative mood. Moreno and Bhattacharjee 2008, in a single-party study the other party did not actually exist, report that knowledge of the other partys emotional state affects bargaining behavior. For a discussion of the literature arguing that emotion can enhance the individuals ability to make rational choices, see Ackert et al. 2003. Psychologists and experimental economists have studied other emotional states that could be of interest to accountants. Lerner and Keltner 2000, 2001 report that fearful participants make more pessimistic estimates and more risk-averse choices, while anger leads participants to make more optimistic risk estimates and risk-seeking choices. Interestingly, the responses of angry participants more closely resembled those of happy participants than those of fearful participants. For reviews, see Lerner et al. 2004 and Pham 2007. An interesting issue raised by these studies is whether the effect of these emotions is to make people overly optimistic/pessimistic. We cannot conclude one way or the other without having some baseline measure of the probability. What should the individuals believe the probability to be? Since the participants disagree, we can assume that their emotional state has led at least one of the groups to be incorrect, but that does not preclude the possibility that they both may be in error. Ideally, further research will be undertaken in this area where there is a known correct
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answer. A topic that conceivably could be related to the issue of optimism/pessimism is the effect of regret in decision making. It has been shown to have an impact in many nonbusiness decision settings e.g., Gilbert et al. 2004. A paper by Libby et al. 2008 suggests that optimism/pessimism is not always the irrational result of the decision makers emotional state. They report that in some circumstances optimism/ pessimism may be the result of the incentives. If analysts desire good relations with management, they report that, all else being held constant, the optimism/pessimism of sell-side analysts is a deliberate act and not based on an emotion or trait. Two recent studies suggest the possibility of yet another emotion that could be affecting worker behaviorguilt/guilt aversion. These studies also illustrate how labels potentially can serve to separate like ideas. Schnedler and Vadovic 2007 hypothesize and nd that guilt aversion motivated participants to exert effort beyond the minimum required by the control system. One might conjecture that this merely renames the concept embodied in gift exchange e.g., Hannan 2005. Stafero 2006 used guilt to describe the behavior of individual members of Japanese work groups. The workers felt guilt when they made insufcient contributions to their work group. In contrast, Birnberg and Snodgrass 1988 offer a more positive explanation of this behavior, suggesting that the outcomes to other members of the group may have a positive utility to an individual member. Failure to achieve the groups goal results in lowered utility because of the loss to others as well as to oneself. Fairness. While the perception of fairness has primarily been researched in strategic settings, the perceived fairness of the accounting system affects the behavior of the individual in individual choice settings as well. Libby 2001 and Hufnagel and Birnberg 1994 found that the participants were sensitive to the perceived unfairness of the accounting system procedural fairness even when they were not adversely affected by the rule or system. Physiological Measures and BAR Behavioral accounting researchers have tried a variety of methods to understand decision processes. The methods utilized are relatively non-intrusive, but provide greater insight than observing an outcome/response in an experimental setting. These approaches include think-aloud protocols e.g., Bedard and Biggs 1991 and data boards e.g., Shields 1980. These approaches yielded insights into cognitive ow or the decision process being followed. However, both of these methods directly involve the participant and are limited to reporting the decision makers conscious behavior. The methods discussed in this section measure the same behaviors discussed earlier, but use methods intended to measure physiological changes. Hunton and McEwen 1997 utilized an eye movement retinal imaging computer to study the information search strategy of nancial analysts. Unlike protocol analysis that relies on selfreporting and data boards that report only choices, they were able to track the search strategies of the analysts in a less obtrusive but more detailed manner. They were able to observe data scanned but not reported protocols or chosen data boards by the participants. Consistent with data board research, they found that the more accurate analysts used a directed rather than a sequential search strategy. Their search appeared to be motivated by hypotheses generated by the process.4 In nance, Lo and Repin 2002 used more traditional methods electro-dermal and pulse rate measures to measure the emotional state level of excitement of ten stock traders while they were actually trading. Lo and Repin 2002 found signicant differences between periods when signicant market events were and were not taking place. They argue this suggests that emotion is a
For a discussion of the use of eye movements in marketing research where they have been used more often, see Zaltman 1997.
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relevant component of the traders decisions. Their data suggest that the response varies with experience, but the sample is too small to draw any statistically signicant conclusions. Neuroeconomics and Neuroaccounting Recently researchers studying decision making have taken a new approach. Working with neuroscientists, they have gone one step deeper inside the black box that is the decision maker. Using various devices, they observe the patterns of brain activation as individuals make choices e.g., McCabe et al. 2001; Camerer et al. 2005; Knudsen et al. 2007. Given the neuroscientists knowledge of the function of the brain centers, conclusions can be drawn about what underlies the observed behavior. By moving one step closer to the decision makers cognitive activity, the role of the stimulus and the response changes in an interesting way. The decision, typically considered the response in BAR studies, now is the stimulus and the brain center activation is the response. This is in contrast to traditional research in BAR where researchers observed behavior and inferred the underlying cognitive processes or extracted them from protocols. Thus far, little research of this type has been undertaken by behavioral accounting researchers except for John Dickhaut e.g., Dickhaut et al. 2003; Smith and Dickhaut 2005; Rustichini et al. 2005; Dickhaut 2009. Dickhaut and his colleagues have papers Dickhaut 2009; Dickhaut et al. 2009a, 2009b using neuroscience to study the evolution of recordkeeping i.e., accounting. However, none of these papers provide the type of systematic review of the possible link between neuroscience and BAR that can be found for nance in Sapra and Zak 2008, who offer neuroscience explanations for observed behaviors in nancial decision making where data from neuroscience and neuroeconomics are available. While potentially quite insightful, there are at least three reasons why research of this type will progress more slowly than other types of BAR. First, it requires cooperation with a researcher possessing access to machines to perform the scans and skilled in reading brain scans. Second, it would appear that research of this type is quite expensive. Third, explaining the ndings to other BAR researchers may be difcult. Moreover, the results may not eliminate the issue of hardwired versus learned behavior as the explanation for the response. An example of neuroeconomic researchs potential relevance to BAR can be illustrated using the ndings of Luft 1994 and Hannan et al. 2005. Luft 1994 found that participants in her study preferred a bonus to a penalty pay scheme even though the payoffs from the two systems were equivalent. Hannan et al. 2005 found that the participants in the penalty condition exerted more effort. Given that neuroscientists have shown that different brain centers are used to measure pleasure reward and pain penalty Delgado et al. 2000, this raises the question of whether the preference for a bonus scheme reects differences between the pleasure and pain brain centers hardwired neuroscience explanation or whether it is the approval implied by the reward and disapproval associated with a penalty a social psychology issue of intrinsic reward. Barnea et al. 2009, using Swedish data on twins to study investing behavior, suggest that there is both a genetic and a learned component. A series of neuroscience studies may provide some insight into what is happening. Using the ultimatum game, Tabibnia et al. 2008 report MRIs of the brain that suggest similar results to those above for fair and unfair behavior. Their design utilized an individual choice study using only participants who receive the offer ultimatum. First, the results suggest that the recipient participants differ in what they believe to be a fair offer. Second, those who judge the offer to be unfair show different patterns of brain activity than those who consider the offer to be fair. Finally, participants who accept an unfair offer had different patterns in their MRIs than those who reject unfair offers Tabibnia et al. 2008. A study by Harbaugh et al. 2007 that relates brain activity to altruism in decision makers also illustrates the potential link of neuroscience to BAR. They studied the brain scans of 19
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female students who were asked to make a decision allocating $100 between a food bank and themselves. The brain scans of the altruistic gave more and selsh gave less participants show that the altruistic participants exhibit greater activity in the part of the brain that reects pleasure than do the selsh participants. The altruistic participants show signicant activity in that part of the brain even when they were required to contribute a xed portion of the $100 to the charity. Studies of this type suggest that there is a physiological basis for the altruistic behavior that is observed in the real world. It does not explain if the behavior is inherent and hardwired Hsu et al. 2008 or related to interacting with people and learned Andreoni 1990. The authors suggest that they believe their results also would apply to male participants had they been included in the study. Zak and his colleagues introduced a line of neuroeconomic research that approaches the black box of human cognitive processes in a different way. They argued that the observed behavior, in this case trust, is based on the brains response to a particular hormone. Trusting participants exhibit higher levels of the relevant hormone than nontrusting i.e., economically rational participants. This work is summarized in Zak 2008. Kuhnen and Chiao 2009 show that there also appears to be a genetic basis for the differences in the amount of dopamine and serotonin. In their study these differences, like those reported by Zak 2008, are associated with different patterns of behavior. Summary: Individual Choice Studies Overall, research focused on the individuals decision-making behavior has played an important role in BAR historically. The predominance of individual-focused research, particularly among North American and many Australian researchers, is easily observed by examining a recent issue of BRIA 2007. It contained 13 papers. All of these papers could be classied as focused on the individual even though they may describe in the scenario the existence of another/other hypothetical persons or have a scripted confederate role-play the other person. Equally important is the diversity in topics/areas in which the research is located. Three were related to auditing. Four dealt with aspects of management accounting. Three were related to nancial reporting/ decision making. There was one in tax ethics, one in cross-cultural ethics, and one related to education. While this admittedly is a convenience sample, the results are similar to Shields 2007. They likely are representative of current BAR in North America. A very different view of BAR in Europe would result from examining an issues of AOS or other European-based accounting journals. This emphasis on individual-focused research is likely to continue to be true of BAR in North America for several reasons. Many BAR questions focus on the behavior of individuals acting alone. For example, some of the studies involve one individuals processing data provided by another individual or a system e.g., Fedor and Ramsey 2007. Others continue to be concerned with the cognitive processes of individuals e.g., Joe 2003. Still others involve norms, ethics, and culture, which typically have been studied by examining the behavior of the individual in isolation. Finally, the individual also may be the easiest approach for researchers. Individual choice studies do not exist in isolation from the other categories of BAR discussed in this paper. As the research on strategic choice and group-focused behavior shows, understanding the behavior of individuals often is the basis for hypotheses about behavior in dyads and groups. Behavior such as honesty Evans et al. 2001; Cohen et al. 2007, that has been exhibited in studies in which the individual does not actually interact with another participant, can lead to predictions of behavior in dyads and groups that differ from those of classical economics. This is particularly true because many of the individually focused studies are studies isolating one member of a network of individuals. This is readily apparent in the next section in the discussion of participation.
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There also are limitations in studying the individual in isolation. In part, this results from the movement in organizations to make groups and teams the decision-making unit. In addition, a certain amount of the richness found in the decision-making situation may be lost when BAR isolates the individual from his or her environment. Strategic Choice Studies Studies that explicitly consider the participants strategic behavior are relatively new in BAR, though strategic behavior often was implicit and important in earlier BAR. How managers behave in a participative management setting is an example of a strategic setting. Moving from an individual choice study where the actors behavior is inward facing to one where another actors behavior explicitly must be considered introduces the strategic dimension to BAR. In contrast to the individual choice studies, in the strategic behavior studies the decision maker must consider the choices made or to be made by an actual rather than a hypothetical fellow participant. For example, in a management accounting study, the strategy to which the participant responds could be the choice of budget level set by another participant acting as management. While an individual choice study informs us how the manager/agent responds to a given budget level, we do not learn which budget level the owner/principal would choose to offer to motivate the manager/ agent. In an individual choice study, the researcher may set the independent variable e.g., the budget at levels different from those a manager actually would choose. A signicant amount of experimental economics research uses experimental dyads see Roth 1995. In BAR, strategic choice studies recognize the limitations in studying the individual in isolation from the environment and the importance in many settings of the behavior of the other party on the individual. Some argue that it is important actually to have the other party exist whenever the instructions indicate he/she does. Experimental economists argue that it is required for one of two reasons. The rst is maintaining the integrity of the participant pool. Experimental economists often utilize the same pool of participants in different studies. In some studies, the participants experience in a prior study even is a criterion for selection. They argue it is important the participants believe what they are told. If the post experimental debrieng informs them that something was not really the case, they may speculate in future studies about the true nature of the study. The other reason relates to the richness of the experimental setting. Unless the experimenter has insight into how the other party will behave from prior eld or laboratory research, including the actual behavior of a participant will increase both the potential insights from and the validity of the study. See Calegari et al. 1998 for an example of this issue.5 Negotiation Studies The negotiation process is ubiquitous in the business setting. For a review, see Tsay and Bazerman 2009. Audit rms negotiate with clients over changes in nancial statements and accounting methods McCracken et al. 2010, rms negotiate with suppliers when they establish operationally intimate relationships JIT, and sub-units within the organization negotiate transfer prices and/or quantities. While the surface characteristics of the situations are different, many of the behaviors may be the same e.g., the strategies adopted by the parties. They may differ on information asymmetry, division of payoffs, and relative power. The degree of information asymmetry would be expected to affect negotiation, as could the incentives of the parties. For example, in budgeting negotiations the parties typically are playing a zero-sum game. The slack absorbed by the worker reduces the managers/principals prot by a like amount. In other cases, such as the
For a discussion of this literature from an auditing perspective but germane to all BAR, see Hooks and Schultz 1996 and the symposium in Auditing e.g., Dopuch 1992 and Gibbins 1992. For the contrary view from psychology, see Kelman 1967.
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audit or transfer price settings, the negotiation game being played need not be a zero-sum game. Rather, a small concession by one party may be signicant to the other. Such an asymmetry in payoffs should affect the negotiation process. Negotiation studies also can be characterized based on the relative power of the participants: those where the parties have equal power and those where one party has an advantage. The signicance of the strategic interaction is of particular importance for BAR because of the importance of performance as a response. An example of how individual choice literature and strategic choice settings are related can be found in Fisher et al.s 2000 study of participation utilizing interacting dyads. In the framework utilized in this paper, this represents a paradigm shift. Early BAR into participative budgeting focused on how the worker would behave. Would the workers take advantage of their private information to create slack? Young 1985 even had his participants meet with a supervisor played by the experimenter or a colleague. However, the supervisor did nothing more than accept the worker-participants budget. Thus, Youngs 1985 study essentially is an individual choice study. While social pressure was present the design forced the worker-participant to face a supervisor, it omitted any negotiation over the acceptability of the workers proposed budget. The explicit power in the situation was vested with the worker. In reality, the budget-setting process is quite different. In the natural setting, the supervisor also has signicant power. Thus, while Young 1985 reported how the worker would act in isolation, important aspects of participation are better captured as a dyad that permits strategic interaction. A second area of negotiation studies where the use of dyads is present is in the transfer price literature. Like the participation studies, they are outcome-oriented. In an early study, DeJong et al. 1989 test the efcacy of various transfer pricing rules. Haka et al. 2000 vary the precision of the accounting data the manager possesses. The participants receiving the less precise information negotiated strategically. They tried to achieve the best price at the risk of failing to reach an agreement. In contrast, the participants with more precise data used the negotiation process to communicate information to the other party about his or her position in an attempt to reach a more informed decision. Chalos and Haka 1990 and Ghosh 2000 also studied the negotiation process in the transfer price setting in laboratory experiments. Ghosh 2000 observed that when the incentive system is consistent with the sourcing of the input, the systems are perceived as fairer and the participants behaved in a less exploitive manner. Also see Luft and Libby 1997. How humans negotiate and what motivates them to behave in a particular way is a question of interest to all BAR. Findings in one area have implications for the others. Calegari et al. 1998 report two interesting results concerning dyads using an auditing-based task. One relates to the outcome of the negotiation process, the other to method. In their study, M.B.A. students, participating in the experiments as auditors and clients, exhibited two types of behavior: competitive pairs and cooperative pairs. The competitive pairs behave as Calegari et al.s 1998 economicbased hypotheses predict. However, the cooperative pairs exhibit what Calegari et al. 1998 describe as signaling and cooperative behavior. What causes the pairs to behave differently is an unanswered question that should interest BAR. Calegari et al. 1998 also reported an interesting methodological result. The outcomes from a human-computer dyad were different from those of the human-human pairs. Obviously, the computer was not programmed to respond to cues/signals, such as willingness to cooperate, that the human partner might send. This reinforces the concern about the limits in utilizing the individual choice style of research when the other party has an opportunity to act/interact strategically. This is especially true where the set of actions includes choices that could facilitate reaching a noncompetitive, but mutually benecial, conclusion. There are, however, settings when studying dyads in a laboratory may not be practical or even feasible. This would be especially true in cases such as Calegari et al. 1998, where students may
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not be suitable surrogates for professionals. This raises the issue of external validity. Researchers have tried to resolve this problem in an audit setting by studying the negotiation process using professionals as participants in individual choice studies that simulate interacting dyads. For example, Favere-Marchesi 2006 studied the initial negotiation postures of auditors and clients over a proposed change in the nancials, giving the same case study separately to each type of participant. They conclude that ex ante the clients have a better understanding of the auditors initial position than the auditors do of the clients. In a related study, Tan and Trotman 2007 proposed and tested a model of when in the negotiation process auditors should make concessions to clients. Their experiment uses nancial ofcers as clients and a computer simulation as the auditor who negotiates with the client via email. They report the clients responses and the clients strategies in responding to the simulated auditor. However, their ndings should be viewed in light of Calegari et al. 1998. How this initial difference and differing strategies would play out during negotiations between nancial ofcers and actual auditors remains an open question. Because of the potential problems involved in using actual auditors and their clients, it is unlikely to be studied in an experimental setting using professionals as participants in both roles. We may need to rely on archival research to understand the behavior of these dyads e.g., Nelson et al. 2002. Settings with explicitly unequal power. Other papers have utilized dyads in negotiation/ bargaining studies where the parties possess unequal power. These studies usually investigate the presence or absence of the norm of fairness in economic man rather than negotiation in a specic setting. They typically utilize either the ultimatum or the dictator game Roth 1995. In the dictator game, one person the dictator is given an endowment to allocate between self and another party the recipient. The recipient must accept the dictators allocation. These studies utilize actual rather than simulated recipients. Because the recipient is passive in the experimental setting, the use of a dyad would appear to be intended to meet the criterion of not misleading the participants.6 In contrast, in the ultimatum game, the rst partys the proposer situation is identical to that of the dictator except that the recipient now may accept or reject the proposers offer. If accepted, the proposers offer determines each partys payoff. However, if rejected, both parties receive nothing. The results of studies using both games tend to support a norm of fair treatment expected by the responders and recognized by the dictator/proposer Roth et al. 1991; Berg et al. 1995. In both the dictator and ultimatum games, the rst party makes an offer approaching, on average, 40 percent of the endowment Roth 1995. This result appears to reect the recognition by many of the participants of a norm that sets the fair allocation of the endowment. Cheap talk research in dyads. The typical cheap talk study also reects a setting where the strategic interaction is germane to the study e.g., Kachelmeier et al. 1994; Rankin et al. 2003. How will the party receiving the nonbinding message react to it? Obviously, such a study could be done using the individual receiving the message as the focus. However, such a study would lose the behavior of the participant who is allowed to make the cheap talk commitment. That individuals behavior also is of interest to the researcher. Thus, it is preferable for the study to use a dyad potential sender and receiver rather than only a receiver. In general, research has found that the cheap talk often is viewed by the recipient as if it is a binding commitment e.g., Kachelmeier et al. 1994; Zhang 2008. Cheap talk studies can be conducted in any setting in accounting where the context permits one party to communicate with and make a nonbinding pre-commitment to another party that, if true, should affect the other partys behavior.
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There are, of course, designs where the recipient-participant could be needed later for another experiment. For example, the recipient-participant in the early rounds could, in the later rounds or in another experiment, play the role of the dictator. The researcher could study the interaction between the amount offered to a participant and the amount subsequently offered by that participant when acting as the dictator.
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Effect of non-negotiating third party. The work of Fehr and Gaechter 2000 and Zhang 2008 provide insight into why it is benecial for the researcher to include all the potential parties in a study. Fehr and Gaechter 2000 report that a third party, who only observes unfair behavior, is willing to incur a cost to punish the unfair participant. Zhang 2008, in a BAR study, provides an interesting twist on the strategic interaction present in dyads. The dyad about which she hypothesizes consists of two managers agents who report to the same owner principal. She examined the truthfulness and whistle-blowing behavior of two agents. Each agents cost is common knowledge to the two agents, but asymmetrical information to the principal. Essentially, her ndings show that the strategic behavior of the members of the dyad the agents depends on the endogenous behavior fairness of the third party the principal. The actual presence of the third party in the study had two benets. First, it enhances the internal validity of the study. Second, it ensures that the principals behavior in the experiment actually reects how the principal would act. In this case, the principal offers a lower wage because of concerns over being cheated by the agents. This insight, in turn, can serve as a basis for future BAR on the principals behavior in this setting. Reputation. We all utilize information on anothers past behavior i.e., reputation in making choices. Similarly, managers must rely on the reputation of other managers in making investment decisions, and investors, analysts, and auditors rely on managers reputations in their interactions with rms. However, there is limited research on the role of reputation in the willingness of one party to trust another.7 This reects the design of experiments. Most studies, such as those described in the previous sections, use a turnpike approach. The participants are anonymously paired and typically do not play the same participant more than once. This is intended to eliminate reputation as a factor in decision making and as a potential confound. Thus, the question of the reputation of individual players must be set aside. But what is known is that when players interact over time, expectations and reputations are formed and, moreover, the quality of decision making may improve relative to the turnpike design Schwartz and Young 2002. Duffy et al. 2009 provide further insight into reputations. Participants may not always recognize the value of acquiring information about the other participants behavior, a form of reputation. They reported that participants who initially received costless feedback about the behavior of others utilized the feedback/reputation-related information. However, those participants who did not receive feedback information until later in the experiment did not utilize the information to the same degree. In addition, they report that when a nominal cost is attached to the feedback, participants did not buy the information even though it was quite protable to do so. Note that in the studies discussed above, reputation is very stylized: it takes the form of very specic information. This encapsulates the idea of reputation in the laboratory. However, in the real world, the information that goes into forming a reputation may be subjective and imprecise. Given the role that reputation can play in business settings, there is room for additional research in this area. Summary: Strategic Choice Studies The study of dyads is at the intersection of individual and group BAR. It offers valuable insights into the individuals strategic behavior and is important for three reasons. One is that strategic behavior is integral to many business activities. A second is that participants act differently when the other party is present rather than hypothetical e.g., Calegari et al. 1998. Finally,
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Archival markets research has concerned itself with audit rm reputation, particularly in the wake of Arthur Andersen e.g., Barton 2005. There has been very limited BAR in this area Mayhew 2001, Mayhew et al. 2001. BAR has operationalized the audit rm as an individual in experimental markets studies.
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and perhaps most importantly, the use of dyads permits the researcher to study both sides of the strategic interaction and do so over a series of iterations between members of the dyad. The dyad may be composed of peers as in Zhang 2008 and Towry 2003, or be hierarchical as in the studies of budget negotiation Fisher et al. 2000 and the dictator and ultimatum games. BAR research undertaken thus far suggests that the presence of a real person with whom the participant interacts affects their behavior Calegari et al. 1998. BAR using dyads could be useful in developing a better understanding of how managers and workers, as well as auditors and tax professionals/payers, behave in various settings, in addition to insights into the negation process. It also could reveal how soft behavioral constraints such as norms can affect behavior. The nature of the interaction can vary, as can the mechanism used to achieve it. As even the ultimatum game shows, both parties possess some power i.e., the ability to affect the behavior of the other, albeit in some cases a very soft power. The study of how they use this power and how the parties interact their strategies is what makes the study of dyads interesting. It is important to note that the results discussed above and elsewhere often run counter to the simplistic notion of the self-interested, wealth-maximizing economic person. Because dyads can be viewed as a subset of group behavior, studying dyads yields potentially valuable insights into group behavior. However, there are obvious limitations. The greater level of complexity facing the individual members of a group increases with the number of members interacting. Thus, many of the laboratory studies reported below under group-focused BAR limit the strategic choices available to the interacting parties. As useful as data gleaned from the study of dyads may be, to better understand the group phenomenon in question researchers have turned to alternative research methods relying on naturally occurring events eldwork, archival data, surveys, and interviews. The ability to undertake research on dyads and observe the strategic interaction of the parties may not be as easy as the BAR focusing on the individual. Dyad research at least doubles the number of participants required with a comparable increase in the cost of the experiment. It also can require a high degree of coordination. The participants must be available at the same time and, typically, in the same place. This suggests that research of this type is likely to take place in a laboratory or through eldwork. The former is likely to mean student participants; the latter, professionals performing their job in their natural environment. This would appear to limit the amount of work of this sort that will be undertaken using nonstudent participants. GROUPS The label group in this context is used to include a variety of organizational structures. Group is dened as any collection of individuals greater than two and typically no more than four in laboratory studies. Rarely is it more than ve members. This denition is admittedly arbitrary, but consistent with the literature in the area. The above denition does not specify a particular organizational structures for a group. Thus, group as dened for this section includes not only peer groups, but also teams and hierarchical groups. Psychology research on group decision making initially focused on the quality and nature of the individual versus group decisions. Which makes the better decision? Which makes the riskier decisions? For a review, see Sutton and Hayne 1997 and Daroca 1984. Sociology was interested in the development of networks e.g., Homans 1951 and the affect of context variables on group behavior e.g., Dalton 1959. For a review of sociology based studies, see Miller 2007. More recent studies have focused on the nature of the group processes. How does the composition of the group e.g., temporary or permanent affect its decision? What is the effect of changes in group membership? How does the decision rule used by/imposed on the group affect their decision?
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BAR on groups has addressed ve broad categories: 1 individual versus group performance, 2 group decision processes, 3 the role of technical and accounting systems in group decisions, 4 the role of incentives, and 5 the role of a groups characteristics in its performance. Many studies have asked questions that relate to more than one of the above categories. BAR group research has utilized the full range of research methods including experiments e.g., Young et al. 1993, surveys e.g., Chalos and Poon 2000, protocols e.g., Bedard et al. 1998, video Walker and Aritz 2006, and eld research e.g., Anderson et al. 2002. Participants The type of participants used in group research has varied depending primarily on the subcategory of BAR being studied. As is described below, auditing studies have used auditors as participants whenever possible. Recently, studies have again begun to use students. This reects both the declining availability of auditors as participants and the belief that student participants possess the appropriate knowledge, skill, and experience for many group tasks. In contrast, the study of groups in other areas, particularly management accounting, has used a more diverse set of participants. Laboratory studies typically have used students, albeit often with signicant work experience e.g., Daroca 1984; Rowe 2004. Managerial accounting researchers have studied real people in eld studies e.g., Anderson et al. 2002, and surveys of managers reporting on on the job experiences e.g., Chalos and Poon 2000. Group Decisions and Processes It is interesting to note that the much of the early research on groups in BAR was in auditing Schultz and Reckers 1981; Reckers and Schultz 1982; Trotman et al. 1983. This likely reected the overall level of BAR interest in auditing during this period, as well as the absence of teamwork in U.S. rms at that time. The ndings of the auditing BAR studies generally are consistent with earlier non-BAR group research. For example, Schultz and Reckers 1981 report that decisionmaking groups exhibited higher condence and less variability than individuals. In a topic more closely related to accounting than generic group research, Reckers and Schultz 1982 report that groups adhere to the accounting rules more closely than individuals. Indeed, because groups audit teams are the way audits are performed, the use of groups in auditing has been a continuing area of BAR in auditing e.g., Solomon 1987; Reckers and Schultz 1993. In management accounting, Daroca 1984 studied participation in a group setting. He reported that, as Becker and Green 1962 conjectured, participation could result in group polarization against management, leading to negative rather than positive gains from participation. These ndings, like those of Zhang 2008 and Greenberg 1990, indicate that group involvement may have negative outcomes for the organization if the leaders style is perceived negatively by the group. Unlike the typical generic group study that focused solely on the groups output/decision, Bedard et al. 1998 studied group processes as well as the efcacy of groups versus individuals. They utilized protocols developed from audio tapes to examine communication among group members and identify what type of interactions characterized successful and unsuccessful groups. Because their sample was of necessity small, the ndings must be viewed tentatively. However, they raised an important issue by delving into what makes groups effective. Accordingly, they studied process as well as outcomes. Bedard et al. 1998 also investigated how the voting rule, formal or informal, affects group behavior. Given the range of possible rules e.g., unanimity, majority rule, and leader with a veto, it is reasonable to expect that the voting rule could affect the groups behavior and output/decision Birnberg et al. 1970. This issue is relevant to any group decision-making setting within accounting. Given the size of Bedard et al.s 1998 sample, it is hard to draw a conclusion.
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Chalos and Poon 2000 used the group setting to study participation. They used a survey of and interviews with 177 managers comprising 55 budget teams in a single rm to collect data on the effect of group process on perceived quality of group decisions. They studied how the presence of participation in the groups capital budgeting process affects information sharing, budget emphasis, and self-reported measures of performance. They report that participation positively affects the perception of the amount of performance information available, amount of information sharing, and the reported importance of the budget process. However, it is central to note that the researchers did not observe the groups in action. Role of Decision Support Systems Just as an individuals decision making can be affected by the use of a decision support system DSS, group decision making can be altered by a DSS. Murthy and Kerr 2003 and Kerr and Murthy 2004 investigated the impact of different types of computer-mediated communication CMC in different task settings on the quality of the groups decision. Typically, the conditions compared are face-to-face communication and computer-based systems. The ndings indicate that face-to-face groups outperformed CMC groups when problem solving was the measure of performance see also Rowe 2004. Interestingly, both CMC and face-to-face were equally effective in generating ideas, though performance appears to be sensitive to the task setting and the type of CMC. Kerr and Murthy 2004 report that a bulletin board form of CMC outperforms chat rooms and face-to-face communication in a decision setting that requires the participants to exchange uniquely held information to reach a successful conclusion. One caveat in evaluating the above ndings is the use of student participants. Ho 1999 used audit partners, managers, and seniors to study the role of computerized decision support system relative to face-to-face communication in a going-concern evaluation. Her study reports that groups of both types considered evidence that individuals did not. She reports when comparing the two groups that CMC groups had greater agreement on the going-concern assessment than did face-to-face groups and had greater satisfaction with their evaluation. A possible explanation is that the impersonal CMC setting may neutralize the ability of an inuential/powerful individuals in the group to exert undue inuence in the groups decision. Carpenter 2007 also used auditors in a group research study examining the recommendation of SAS No. 99, which requires the use of groups formally in the audit process through brainstorming sessions. Because the brainstorming literature in psychology using students had not uniformly reported the synergistic behavior expected from group discussion Dennis and Valacich 1993, she studied the process in an audit setting using auditors as participants. She hypothesized that brainstorming groups would perform better than individuals or nominal groups in part because the group members were professionals doing their job in the experiment rather than student participants performing a mundane task. Her results support the benets of brainstorming. Hoffman and Zimbelman 2009 extended Carpenter 2007. They used brainstorming to improve the audit program. In their study, a panel of experts brainstorm potential modications in the fraud detection program for a case study. They report that auditors subsequently given the case and the modied program performed better than those who were not. Based on the ndings of Ho 1999, Carpenter 2007, and Hoffman and Zimbelman 2009, it would appear that the ndings of generic group research may not always apply to BAR. The good news for BAR is that it opens a wide variety of questions. The bad news is the ability to secure access to professionals functioning in a group setting. In its early stages, research on computer-aided group decision making may need to rely on eld and archival data. Role of Incentive Systems As in other areas, the role of incentive systems has been very important in group research. Management accounting group research recognizes the conict between group incentives and
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individual incentives. When the contribution of the individual is identiable, an individual-based incentive system prevents the free rider problem, where the individual makes a minimal contribution to the group effort and secures a disproportionately large reward. However, when the only observable measure is the group outcome, the manager is limited on what he/she can base the payoff e.g., Drake et al. 1999. Researchers have attempted to ascertain ways in which free rider behavior in groups might be mitigated. Towry 2003 argues that information on peers performance that is unknown to the principal/manager is observable by group members. Thus, the group members are capable of mutual monitoring. She reports that the greater the members group identity, the more effective their ability to monitor each others behavior mutual monitoring and the greater degree of coordination they can achieve. Rowe 2004, in a study that examined both systems and incentives, takes a slightly different approach to resolving the free rider problem. Rather than using monitoring, he used the information system to inform the groups members that free riding in his task actually was suboptimal behavior for both the free rider and the group. Rowe 2004 modeled the free rider problem as a public goods dilemma. Each member of a four-person group decided how much of their endowment to contribute anonymously to a common pool. The amount in the pool was tripled and divided equally among the groups four members without regard to how much each had contributed to the pool. Obviously, the self-interested strategy is to contribute nothing and share whatever is in the tripled common pool. If all four members of the group follow a free rider strategy, they would be no worse off than they were at the beginning of the experiment. At the other extreme, if all members of the group contributed their entire endowment to the pool, everyone would be signicantly better off. Rowe 2004 found that the group members contribute and therefore receive more when the information system informs an intact group of the benets of contributing. This occurs even though the information system did not provide any new information and there is no communication among group members. The Impact of Extra-Group Factors While all of the above studies were laboratory-based, BAR also has examined the behavior of real groups. This permits the researcher to observe the effect of the setting in which the decision takes place. Rowe et al. 2008 and Anderson et al. 2002 used two different research methods to study the decision processes of groups in their natural setting. Both papers study among other things group conict, the sharing of horizontal asymmetric information, and the potential role of consultants. Rowe et al. 2008 report the results of a longitudinal, participant-observer eld study of a particular cross-functional group within a division of a rm. The group was formed by management to try to reduce costs. Initially, each group member behaved in a self-interested fashion to retain slack and benet their particular function in the organization. The outcome of the study shows that consultants, by redesigning the information system, were able to mitigate selfinterested behavior conict and replace it with more group-oriented behaviors. Rowe 20048 tested this nding in a laboratory setting. Post-decision, Anderson et al. 2002 used a survey supplemented with interviews of group members within a single rm. They examined the effects of a large number of variables e.g., conict resolution, group size, presence of consultants, importance of decision on the complexity and speed of adoption of the ABC system by a group. One of the most signicant ndings is that complexity of the ABC system increased with group size. They did not include any data on the groups subsequent performance.
Despite the dates of publication, the eld research was conducted before the experimental study.
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Summary Group research is increasing in BAR. This reects the increasing use of groups in practice across areas of accounting. Moreover, because so much of the research is concerned with how groups function, it would appear that BAR in one area of accounting is germane to others. In general, research suggests that, consistent with non-BAR research, group members have greater condence in their decisions than individuals, there is less variability among the decisions by groups than among individuals, and groups reach more conservative policy decisions. Because the typical group study does not have a correct decision, the quality of their performance is not always ascertainable. However, Bedard et al. 1998 reported, in a study that did have a correct answer, that groups perform better than individuals, but still may consider the proper action and reject it. Greater insight into group decision processes is needed if BAR is to understand why groups and individuals make different decisions. This would permit BAR to make positive recommendations about how groups should function rather than solely descriptive statements. Bedard et al. 1998 showed one way this could be done: using audio or video tape of the committees deliberation. One question that emerged from Bedard et al. 1998 is the critical nature of the voting rule adopted by the group. Others Anderson et al. 2002 related selected group characteristic e.g., group size and use of consultants to the groups recommendation. Group size led to more complex systems, and the use of consultants facilitated reaching simpler decisions. Interestingly, the papers in this area have not examined the role of factors such as the members ex ante willingness to trust or cooperate on the groups behavior and whether the groups members are volunteers or were assigned to the activity. The latter could be signicant in the behavior of real-world group membership. While the initial research involved face-to-face groups, recent studies e.g., Kerr and Murthy 2004 have examined the role of information technology on group interaction. In general, CMC resulted in more condence and satisfaction than face-to-face communication. One can only conjecture why this is true. A possible study would be to insert the same inuential or forceful person in each type of group CMC and face-to-face and test to see if CMC moderates his/her inuence. It also is possible that utilizing CMC gives the group members a greater feeling of involvement. It would appear that group research can be conducted by and likely requires the use of a variety of methodslaboratory, eldwork, survey, and even protocol analysis. It also is reasonable to assume that archival data may be useful for certain questions. Group research, like individual research, has certain limitations. Using participants students or professionals with no knowledge of their history with the other members could affect the results. However, nding existing groups that can be observed in the eld means a loss of control, in addition to the expenditure of time on the part of the researchers. Taking the same group members into a laboratory setting may not be feasible. Creating ad hoc groups in the laboratory using student participants may miss some important aspects of the group behavior and necessarily results in a less rich environment. Finally, every observation typically requires at least four participants. This can restrict the number of observations reported in a group study or create a need for a very large number of participants. All of these considerations argue for the use of multiple methods to achieve convergent validity. One type of group that has not received attention in BAR are groups that have an ongoing existence within an organization. This would include committees and some teams.9 In these groups, the members likely have a history, both good and bad, with each other. As we saw with
Team is used here in the sports sense of the word: a group where each member has a specic responsibility. The governance literature that has typically been archival empirical can be done as a BAR study of the board and/or the audit committee see Cohen et al. 2008b.
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dyads, familiarity affected interpersonal behavior Favere-Marchesi 2006. Many committees that are intended to serve a particular function have continuing membership and have evolved rules or group norms that the members follow in transacting the committees business. This type of group presents a variety of issues, such as voting rules and coalition formation, that may have evolved over time. For a discussion of this issue see Birnberg 2004. As was the case with the individual-focused BAR, group research has a linkage to other BAR. In this instance, it is organization-focused research. The linkage, however, is less obvious. Earlier organization-focused BAR was more macro in character. The typical variables used in contingency research are related to the organizations characteristics e.g., size, task uncertainty, and/or complexity. More recent studies are organization process-oriented. This research is more concerned with how a given organization decides rather than a single characteristic that varies across organizations. Thus, the elements of the network whose output is being studied are important. Group characteristics can be part of the characteristics of the network that are studied. ORGANIZATION FOCUS This research originated with Hopwood 1972, who argued that when BAR observes problems with the organizations control system, the focus of BAR should be the t between the system and the organization rather than tinkering with the design of the system. He repeated this concern in his invited presidential address at the AAA 2006 Annual Meeting Hopwood 2007. As noted in the initial description of BAR focusing on organization, exactly which papers fall in this category is not always obvious. Those BAR studies that present some difculties in classication examine how particular characteristics of the organizations environment affect its accounting/ reporting systems, or they examine how those systems affect individuals or groups within the organization e.g., contingency research. However, this problem of classication should be of little concern to researchers. For an overview of the methods used, as well as research ndings in this focus, see Covaleski et al. 1996, Anderson and Widener 2007, and Ahrens and Chapman 2007a, 2007b. BAR in this category has utilized a variety of methods including eld studies, surveys, and archival studies. Field studies typically involve studying a single organization e.g., Hopwood 1972 or multiple units within an organization e.g., Otley 1980. Data typically are collected after the event being researched has taken place via interviews, surveys, and observation of the organizations activities. In these studies, researcher-collected data may be supplemented by archival data from the unit being observed e.g., Anderson et al. 2002. Surveys in organization-focused research often combine elements of eld research and survey research. Interviews may precede the survey and be used to help design it, or the interviews may follow the survey and be used to clarify/amplify its ndings. Archival BAR utilizes data collected by the organizations to examine the effect of changes in systems or differences between systems. Ittner 2007 discusses the strengths and weaknesses of this approach. A few studies in BAR or cited in BAR involve real-time data collection utilizing participant observers, where the researcher is a part of the activity e.g., Rowe et al. 2008. As the various surveys of this literature indicate, the vast majority of these studies in BAR involve management accounting in for-prot organizations Dillard and Becker 1997; Merchant and Van der Stede 2006. However, a few studies cover a variety of not-for-prot organizations e.g., Covaleski and Dirsmith 1983, audit rms e.g., Dirsmith and Covaleski 1985, and governmental units e.g., Boland and Pondy 1983; Ansari and Euske 1987. In nancial accounting and auditing, research on organizations typically is related to fraud. For example, Cohen et al. 2008a used archival news clippings to study the role of managers in rms where fraud was present. Merchant and Van der Stede 2006 reviewed the extent of eld research in BAR. They utilized what by their own admission was a restrictive denition of eld research. To be classied
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as a eld study, Merchant and Van der Stede 2006 required that there be intensive collection of data in the eld and extensive reporting of data in the paper. They reported that only one paper in BRIA during the period they surveyed 19812004 met their criteria, and the leading North American journals TAR, JAR, CAR, JAE, Auditing, JMAR, and BRIA published a total of 23 8 percent of the eld studies. Ten of these were in JMAR and seven were in CAR Merchant and Van der Stede 2006, Table 1. This nding is not surprising. Though there are a number of active eld researchers in North America, an examination of Merchant and Van der Stedes 2006 data reveals a signicant portion of the organization-focused BAR is performed by European and Australian-New Zealand researchers, and it is published in European-based accounting journals. AOS and Management Accounting Research U.K. together published 215 of the 318 68 percent eld studies Merchant and Van der Stede 2006, Table 1. Obviously, these data underestimate the level of eld research in North American BAR because many of the papers published in European journals were by North American-based researchers. What distinguishes the organization-focused research from the research on individuals and groups is the relative insignicance of the persons in the papers. As the breadth of vision expands, the ability to focus on the more micro aspects decreases. The study by Anderson et al. 2002 illustrates this issue. They count the number of persons composing a team and ask how group size affects the organizations ability to achieve a desirable outcome, but do not examine the behavior of the individuals who composed the team. The types of issues investigated in organization-oriented BAR are quite varied. A simple summary includes the following: The effect of the task on the appropriate accounting/reporting system i.e., contingency research. The effect of task and goal uncertainty on the nature of accounting. The effect of internal and external forces on innovations/changes in the accounting/ reporting system. The importance of accounting as compared to other metrics in the organization. The role of various nontask characteristics of the organization on the organizations accounting and/or strategy. Contingency Studies Contingency research has a long history in BAR. The earliest studies drew on the work of Burns and Stalker 1961 and typically revolved around task characteristics such as task uncertainty e.g., Hirst 1983; Gordon and Narayanan 1984. This line of research raises the issue of the t between the tasks/organizations characteristics and the appropriate accounting system. Firms that adopt the appropriate accounting system given the organizations characteristics, all else equal, should perform better than those that do not have the appropriate t between characteristics and system. Despite the intuitive appeal of this line of research, it has not been as popular as one might expect because of the difculty in nding appropriate data and research design Otley 1980. Fisher 1995, 1998 and Chenhall 2003 reviewed the literature in this area. From their reviews it is apparent that organizations, like individuals, are diverse and differ on a variety of dimensions. Each of these dimensions becomes a basis for research on differences in accounting information and control systems. A few studies examine the effect of individuals within the organizations hierarchy on the form of control exercised. Hopwood 1972, 1974 examines the role of management style and other organization variables on the way the data of the accounting system are utilized. While Hopwoods research would appear to reect a study of the individual, he reports that the nature of the organizations task affected the management style, rather than the selection of a management style being a free choice see also Otley 1978.
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Closely related to these traditional contingency studies is the work of Simons 1987, 1990. Simons studied the t between the strategy of the organization and the form of its control system. He argues that there is a need for a t between strategy and control system. Innovative strategies require controls that permit the manager to make critical decisions i.e., innovate if they are to operate effectively. In a recent study on this issue using a variety of data collection methods, Kober et al. 2003 argue, unlike Simons, that the link between strategy and control systems over time works in both directions. Not only does the organizations strategy affect the form of the control system, but the control system may alert management to the need for a change in strategy. This idea is consistent with Hedberg and Jonssons 1978 conception of the role of the information system. The research of Simons 1987 and Kober et al. 2003 illustrates an important method issue in organization-focused research; that is, a cross-sectional versus longitudinal approach to organizational research. Simons 1987 work is static. He examines multiple organizations at a given moment in time using cross-sectional analysis. Ideally, the rms in this type of study are assumed to be in equilibrium, so there already is an appropriate t between strategy and control systems. In contrast, Kober et al. 2003 did a longitudinal study of a single organization. This permitted an examination of changes in the nature of the organizations control system over time. Note that the answer to the contingency question of t between strategy and control system does not change. However, the longitudinal study provides a richer picture of how the t is achieved, maintained, and ultimately may again change when the rms environment changes. In a study similar to Kober et al. 2003, Cardinal et al. 2004 describe the evolution of an organizations control system over a longer period. Hopwood 1987 used historical research methods to obtain insight into how Josiah Wedgwood adapted the activities of Wedgwood Potteries to t changing economic conditions. For a discussion of the use of historical accounting research, see Luft 2007. A set of studies that relate incentives to the nature of the task would appear to potentially relate to both contingency research in organizations and individual-focused BAR. These studies examine at the organization level the same issue as Chow 1983 and others studied at the individual decision level. The original behavioral paper on this question by Ouchi and Maguire 1975 clearly was an attempt to examine the t between incentive schemes used in particular task settings and the prescriptions of agency theory. For example, do rms in which the outcome of the workers task is measurable, but effort is not, reward the worker on performance as agency theory suggests? Their ndings and later work, such as Eisenhardt 1989, support the broad outlines of agency theory. A more organization-focused study examines the new nonnancial measures developed by the organization to increase productivity. Banker et al. 2000b took advantage of a naturally occurring experiment and used archival data from a hotel rm to assess the efcacy of a new set of procedures intended to enhance protability by increasing customer satisfaction and their return visits. Banker et al. 2000a used archival data to examine the effectiveness of an organizations decision to alter its incentive scheme. Both of these studies are concerned with the organizations policies and the policies effects on the organizations performance rather than the policies effects on the individuals who compose the organization. This approach is similar to studying the behavior of markets as opposed to the actions of the individuals participating in the market. Burchell et al. 1980 extended the nature of the contingencies analyzed. They argued that the role of the accounting system varied not only based on the characteristics of the task, but also with the extent of agreement present among the parties on their goals. Burchell et al. 1980 argue against the role of accounting as a neutral technical system and a source of objective data for decision making. Rather, they argue both the knowledge of the task and agreement over goals in many cases are problematic. Thus, the outputs of the accounting system may be seen differently by the parties involved and can serve a variety of purposes depending on the situation. For example,
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they argue that the accounting data may be the inputs into argument machines high knowledge and low goal agreement or learning machines low knowledge and high goal agreement. Different settings place different stresses on the accounting system. Miller and OLeary 1987 discuss how these forces can work. System Innovation Periodically, accountants have studied how innovations in the rms accounting system occur. There are two broad types of studies. One attempts to ascertain the characteristics of rms adopting the accounting innovation. Others are concerned with ascertaining the characteristics of a successful innovation. Few studies attempt to understand why innovations such as ABC or balanced scorecard are adopted by some organizations and not others e.g., Chenhall 2003. Given the range of organizations required to study the diffusion of an innovation, it is not surprising that the data are collected through the use of surveys. Gosselin 1997 studies the effect of the organizations strategy and structure on the adoption of ABC. Obviously, the economic environment also is relevant. It is only conjecture, but one might argue that the advent of the recent changes in management and accounting e.g., ABC, value chain analysis, balanced scorecard resulted from the presence of external pressure on the organization in the form of signicantly increased foreign competition. How desirable would organizations have found the adoption of ABC in the absence of competition from Japan? Would organizations have adopted it if their prots had been high? It also is important to study why innovations such as ABC and Balanced Scorecard do not succeed. Brunsson 1990 suggests one explanation. He argues that there is a difference between choice of a system decision making and gaining approval from the appropriate members of management to implement that system. The latter, Brunsson 1990 argues, is a political decision reecting the diverse goals and views of the organizations members. His argument is in the spirit of Burchell et al. 1980 and argues that decisions reect diverse goals and power. Role of Accounting in the Organization One of the most interesting lines of organization-focused research discusses the relative importance of accounting data in the organization. As accountants, we may believe that accounting data are the basis for decision making in organizations. But there is evidence that accounting is not always the primary basis for decision making. Lawrenson 1992 researched decision making in British Rail when engineers occupied the dominant role in the organization. Technical engineering data were of primary importance and were supplemented by accounting data. This changed when the Thatcher government proposed privatizing British Rail. It then was important that the organization be able to show a prot. Accounting data became of paramount importance in decision making Dent 1991, and engineering data were relegated to a secondary role. Researchers have studied why accounting achieved a particular role in the organization looking at other factors. It would appear that the social environment within which accounting exists can affect its role in the organization Bougen 1989. Ansari and Euske 1987 reported that intra-organization conict affected the extent to which a new system was implemented by repair depots. While the home ofce DOD thought it was implemented, the repair depot continued to manage its activities with the old system. Berry et al. 1985 report a similar nding within Englands National Coal Board. At the operating level, the accounting system focused on costs and output. At the district and central management level, the accounting system was much more sophisticated and focused on planning and control. The two systems appear to have coexisted because they met the differing needs of the different user groups. Overall, it would appear that forces within the organization inuence the preference for and use of accounting data.
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As noted earlier, the boundaries for organization-focused research are not without controversy. Others e.g., Dillard and Becker 1997 have a broader view of what would be included. Many of the studies they would include in this section relate to how accounting serves broader societal issues. The emphasis of these studies, however, is better understood in the context of accounting and its societal context. Thus, I have chosen to consider their focus, which is on accounting and the external environment, in the next section. Summary Organization-focused BAR asks how the characteristics of the organization affect the accounting system. These characteristics have been very broadly dened. At their simplest, the characteristics refer to the nature of the rm. A more complex view relates to how accounting and/or organizational innovations impact the nature of the organizations adoption of a particular accounting system. At the other extreme are those studies that are intended to understand the relative role of accounting in the organization. Is it the metric used in making decisions in the organization or only one of the metrics used? What factors inuence the answer to the previous question? All in all, it reects a broad literature that is most concerned with management accounting and for-prot organizations. The research reviewed in this section continues to reect the richness of methods and disciplines utilized in BAR. The methods used reect the same wide array found in the other research eld: eld surveys combined with interviews, archival data, and naturally occurring experiments. The data are both qualitative and quantitative and the research may investigate anywhere from a single unit within a rm to multiple organizations. The most striking aspect of the organization-focused BAR is the disciplines on which the researchers draw. They tend to be a different set from those found in the other sections reviewed. Individual, dyad, and group studies draw primarily from psychology and economics and, to a much lesser degree, on sociology for both theories and method. In organization-focused BAR, it is exactly the opposite. Organization-focused BAR draws more on organization theory and sociology. Data often are qualitative, leading the researchers to rely heavily on their interpretation of the data and to draw conclusions rather than present the results of statistical tests with their apparent objectivity. It would be a mistake for researchers who do not do organization-focused BAR to ignore it. Not only are the ndings relevant to those who wish to understand how accounting functions within organizations, but this research often serves as the basis for more controlled studies that are narrower in their focus. Conclusions drawn from small samples or from qualitative data may provide laboratory researchers with an issue that merits further inquiry. In this regard, see Rowe 2004 and Rowe et al. 2008, in which case the latter informed and motivated the former. There also has been a link between organizational culture and individual ethical behavior Windsor and Ashkanasy 1996. Indeed, the role of an organizations culture could affect and/or reinforce other aspects of individual behavior e.g., trust, honesty. ENVIRONMENTAL CONDITIONS The BAR included in this focus is concerned with the interaction between society and accounting and vice versa. BAR of this type examines how the environment i.e., the context in which the organization exists affects accounting and how the resulting accounting affects the members of the organization. In that sense, it is a study of the context within which accounting comes into being and how the environment affects the development of the resulting systems. It
30
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also studies how accounting can affect the environment in which the organization carries on its activities.10 Research in this area draws on a different set of nonaccounting research than the studies discussed in the previous sections, including a variety of sociological and philosophical theories and theorists see Cooper and Hopper 2007. The research may be perceived as more diverse than other foci, but this reects the difference in theory base rather than issues. The general topics include the following: The way environment and/or environmental events have inuenced accounting in the rm. The manner in which accounting has been used to control or manipulate rm members or society. The impact of the rms accounting on the rms external environment. The simulation of macro policies that do not involve accounting choices, including studies of market mechanisms. The rst two topics are the most closely related conceptually. The environmental forces affect the organizations environment and the nature of the accounting that develops within the organization. The particular accounting system that results from the environmental forces may have as its intent specic effects on the behavior of the organizations members. The latter two research strands are quite distinct. The third type of research includes both examples of how accounting is used to affect the organizations external environment as well as unintended effects of accounting on the environment. For a review of this research, see Baxter and Chua 2003 and Cooper and Hopper 2007. Simulation through BAR studies of proposed policy changes examines the manner in which accounting policy can affect policy issues or is linked to such issues. An element of the environment, national culture, by denition is a part of this focus. Nearly all BAR on the effects of national culture are related to the behavior of individuals research discussed under the individual focus. An exception is Fligstein 1998. He discusses the role of national culture on the importance of quantication. He contrasts France and the U.S., where the latters culture stresses measurement to a far greater extent than the formers culture does. His arguments suggest the preference for rule-based versus principle-based accounting is rooted in the national culture of the two countries. It might also explain the different foci of North American and European BAR. Power and Conict A central theme of much of BAR in this area is the attempt by individuals or groups to exert power over others and the resulting conict. The argument, as advanced by Cooper and Hopper 2007 in their review of the critical theory literature, is that one cannot fully understand the accounting system within an organization without examining the social, political, and economic context that produced it. Moreover, once in place, they argue that the system has implications beyond its mechanistic function. It affects the behaviors within the organization beyond those usually ascribed to the system. A signicant portion of contemporary BAR in this area draws on the work of Foucault 1977 on power and control. To those researchers, accounting is not only a means of measuring and reporting outcomes, but more importantly is a means of exerting control over other units e.g., Miller and OLeary 1987. Thus, it is concerned with the process through which the change occurs
10
For purposes of classication, the question is the relative degree to which the research is concerned with the external environment and the role of accounting in the organization. Dents 1991 paper easily could have been considered in this section. Its inclusion in the organizations section reected its relationship to the other papers e.g., Lawrenson 1992 discussed there.
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and the relative power of the parties who cause it to occur. This, in turn, means that the studies tend to reect events occurring within a single organization. The organization typically is a rm, such as Caterpillar Miller and OLeary 1997. However, others have studied broader organizations such as the English National Coal Board Berry et al. 1985, not-for-prots Covaleski and Dirsmith 1983, and standard-setting bodies Durocher et al. 2007. This research has been more active in the study of public management compared to other areas of BAR discussed here. See Cooper and Hopper 2007, 222228 for a review. The central theme to these papers, regardless of their particular context, is the need to understand accounting systems as the product of forces both internal and external to the organization. They reject the notion that changes in systems always result from rational decision making. This can be interpreted by extending the approach of Burchell et al. 1980 to an inter-organization context. When groups in the environment have different goals, accounting is not perceived as objective by the parties. Rather, they are selective in the accounting data they use to defend/justify their position or attack their opponents position. While this process often is explicit and observable e.g., changes in specic sections of the tax code, more typically it is not. To understand why an accounting/ measurement system is in place and how it came to be, we must analyze the events that preceded its adoption. While the questions, indeed, are behavioral, they may lead us to using historical research techniques see Luft 2007 or Jones and Mellett 2007. An example of this approach is Jeacle and Walsh 2002, who studied the evolution of credit analysis and the shift in responsibility power that accompanied the changes. Another interesting example of this research is Durocher et al. 2007. They review the literature discussing various groups attempts to inuence the nancial accounting standard-setting process. They develop an explanatory theory to describe whether a user group attempts to inuence the process. It reects the fact that, in studying the behavior in the environment, many of the same issues discussed under other foci of analysis in this paper also exist in this context. For example, Durocher et al. 2007 utilize models similar to those found in BAR relating to the motivation of the individual to explain the behavior of the groups involved. It also utilizes themes of power and legitimacy found in this paper under organizations. While much of this literature, almost by denition, is a series of unrelated case studies, there is a degree of overlap. This overlap, in turn, provides the basis for more general conclusions. For example, in the nal phase of their study of U.K. health service, Jones and Mellett 2007 discuss the same environmental force Thatchers desire to privatize governmental services as Dent 1991 does for British Rail. How Accounting Affects the Organizations Environment There is much less BAR in this area. One type could be labeled an unintended consequence of the accounting system. These are changes that occur externally to the organization as the result of an organizations accounting innovation, but were not the intent of the innovation. An example of such a consequence is the evolution of standard sizes in clothing. Jeacle 2003a argues that the change occurred as the result of standardizing production and the adoption of standard costs in the clothing industry. She also described the role of standardization on other industries Jeacle 2003b, 2005. While many other examples such as this may exist, relatively few have been researched. Organizations also consciously use accounting to inuence their environments. One example is Chwastiak 2001. She summarizes an interesting series of papers describing how measurement systems were used by the Department of Defense DOD to legitimize the Vietnam war effort and the related expenditures. She argues that, because of pressure from external groups, accounting systems were used to provide an aura of efciency that was not truly present. Her central argument across these papers is that the DOD responded to the external pressure groups by selecting an accounting system that provided the appearance of efciency and effectiveness that, in reality,
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was not present. The intent was to provide a rationale for expanded military budgets and is consistent with what Fligstein 1998 would have labeled the U.S. national culture. It is not unusual for organizations to use press releases and other disclosures to present information supporting a particular point of view. Tinker and Neimark 1987, for example, show how an organization, General Motors, used accounting their annual reports from 1917 to 1976 to present their position on the social issues of gender and class. Simulation of Policies and Market Mechanisms BAR on the effect of new accounting policies was discussed under individuals because the research question concerned how the individual would respond to an accounting change, be it internal e.g., the balanced scorecard or external e.g., partial consolidations. These studies clearly are accounting research. Behavioral research conducted by accounting researchers concerned with economic policy and market mechanisms clearly lies within the domain of behavioral research and experimental economics. The issue is whether being performed by accounting researchers qualies them as behavioral accounting research. This line of study is included, albeit briey, to indicate the scope of the behavioral research being done by accountants. While this research primarily deals with generic topics, it is possible for studies using experimental markets to examine issues clearly with the BAR domain. A study of this type can examine the role of auditing and auditors in the behavior of the market for assets. While this research typically has been done using archival markets data, experimental markets provide the researcher with the opportunity to observe conditions that currently do not exist, may not exist to a sufcient degree, or where the required data are not available. An example of this is Ackert et al. 2001b, who studied the effect of uncertain litigation cost on seller behavior. The research done on market mechanisms i.e., various types of auctions is most relevant to the study of markets in experimental economics. For a discussion of the nature of this research, see Sunder 1995. The papers are unlikely to appear in accounting journals. Their ndings may have relevance to markets within the organization. However, thus far there is no research in this area. Other research has focused on how particular characteristics of a market such as information Ganguly et al. 1994, the use of circuit breakers in a market Ackert et al. 2001a, and bubbles Ackert et al. 2003 affect the outcomes. Dopuch et al. 1989 discuss the role of experimental markets in auditing research. Summary Perhaps the most signicant contribution of the BAR reviewed in this section is not the specic ndings. Rather, it is its central theme: accounting does not exist in a vacuum, and factors and forces external to the organization affect the accounting system and, in turn, the members of that organization. It is equally, though less obviously, the case that changes in the organizations accounting system can impact the external environment. As the result, this research can differ signicantly from BAR discussed in the three previous sections. This BAR often involves a longitudinal historical study of an organization and examines the role that relative power plays in the development of the organization. Environment-focused research draws on a different research knowledge base than that which predominates in the other areas. It draws much more heavily on sociology, anthropology, and critical theory research in other research domains. This tends to give the impression that this BAR is distinct from and unrelated to the other research foci. In reality, it can be viewed as providing the context within which the other research, particularly organization-focused research, must be
33
viewed. This does not mean that it is an input to all BAR. However, just as organization-focused research may inform group- and individual-focused BAR, this research may inform organizationand group-focused research. The use of experimental markets to study macro behavior of investors under particular conditions appears to be an emerging area see Moser 1998. As such, it represents the obverse to the individual-focused research on investor behavior. This research may alter the balance of nancial accounting BAR from the behavior of the individual to the manner in which the sum of these behaviors work their way through the market mechanism just as archival nancial accounting moved the focus of accounting research from the individual effects to market effects. CONCLUSION Each section of this paper ended with a summary intended to reect the role and direction of research in that area. Thus, the conclusions that can be drawn reect the overall trends in these diverse areas. In general, it would appear in the 20 or so years since Birnberg and Shields 1989, BAR has continued to ourish. All of the foci used to organize the research in that paper have continued to develop.
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BEHAVIORAL RESEARCH IN ACCOUNTING Vol. 23, No. 1 2011 pp.

American Accounting Association DOI: 10.2308/bria.2011.23.1.1

A Proposed Framework for Behavioral Accounting Research

Published Online: February 2011 1

Behavioral Research In Accounting American Accounting Association

Volume 23, Number 1, 2011

A Proposed Framework for Behavioral Accounting Research

Behavioral Research In Accounting

Volume 23, Number 1, 2011 American Accounting Association

Behavioral Research In Accounting American Accounting Association

Volume 23, Number 1, 2011

A Proposed Framework for Behavioral Accounting Research

Behavioral Research In Accounting

Volume 23, Number 1, 2011 American Accounting Association

Behavioral Research In Accounting American Accounting Association

Volume 23, Number 1, 2011

A Proposed Framework for Behavioral Accounting Research

Behavioral Research In Accounting

Volume 23, Number 1, 2011 American Accounting Association

Behavioral Research In Accounting American Accounting Association

Volume 23, Number 1, 2011

A Proposed Framework for Behavioral Accounting Research

Behavioral Research In Accounting

Volume 23, Number 1, 2011 American Accounting Association

Behavioral Research In Accounting American Accounting Association

Volume 23, Number 1, 2011

A Proposed Framework for Behavioral Accounting Research

Behavioral Research In Accounting

Volume 23, Number 1, 2011 American Accounting Association

Behavioral Research In Accounting American Accounting Association

Volume 23, Number 1, 2011

A Proposed Framework for Behavioral Accounting Research

Behavioral Research In Accounting

Volume 23, Number 1, 2011 American Accounting Association

Behavioral Research In Accounting American Accounting Association

Volume 23, Number 1, 2011

A Proposed Framework for Behavioral Accounting Research

Behavioral Research In Accounting

Volume 23, Number 1, 2011 American Accounting Association

Behavioral Research In Accounting American Accounting Association

Volume 23, Number 1, 2011

A Proposed Framework for Behavioral Accounting Research

Behavioral Research In Accounting

Volume 23, Number 1, 2011 American Accounting Association

Behavioral Research In Accounting American Accounting Association

Volume 23, Number 1, 2011

A Proposed Framework for Behavioral Accounting Research

Behavioral Research In Accounting

Volume 23, Number 1, 2011 American Accounting Association

Behavioral Research In Accounting American Accounting Association

Volume 23, Number 1, 2011

A Proposed Framework for Behavioral Accounting Research

Behavioral Research In Accounting

Volume 23, Number 1, 2011 American Accounting Association

Behavioral Research In Accounting American Accounting Association

Volume 23, Number 1, 2011

A Proposed Framework for Behavioral Accounting Research

Behavioral Research In Accounting

Volume 23, Number 1, 2011 American Accounting Association

Behavioral Research In Accounting American Accounting Association

Volume 23, Number 1, 2011

A Proposed Framework for Behavioral Accounting Research

Behavioral Research In Accounting

Volume 23, Number 1, 2011 American Accounting Association