Journal of Accounting and Economics 12 (1990) 207-218.

North-Holland

ACCOUNTING METHOD CHOICE

Opportunistic Behavior, Efficient Contracting, and
Information Perspectives*

Robert W. HOLTHAUSEN
UtCuersi(vof Pennsylvania, Phiiudebhia, PA 19104, USA

Received May 1989, final version received August 1989

Three alternative, but not mutually exclusive, perspectives on accounting method choice are
contrasted: the opportunistic behavior, efficient contracting, and information perspectives. Much
of the empirical work on accounting method choice is based on the opportunistic behavior
perspective. The Malmquist and Mian and Smith papers are attempts to view accounting method
choice as a means of improving the monitoring capabilities of contracts which rely on accounting
numbers. The papers serve as useful vehicles for illustrating the difficulties of delineating a set of
maintained assumptions that result in hypotheses about how accounting method choice affects the
monitoring characteristics of contracts, and distinguishing between hypotheses based on the three
perspectives on accounting method choice.

1. Introduction
Efficient contracting was the general premise underlying some of the early
work on the economic consequences of accounting method choice. This work
examined the incentives to choose among accounting methods because of the
explicit and implicit contracts that relied on accounting numbers. The efficient
contracting perspective with respect to accounting choice implies that account-
ing methods, like the form of organization chosen or the form of contracts
written, will be selected to minimize agency costs amongst the various parties
to the firm. This optimization will result in maximizing the value of the firm.
For example, Watts (1977) makes predictions about the likelihood that a
company will present financial statements and about the content of those
financial statements based on minimizing the agency costs between managers,
shareholders, and bondholders.. The questions posed ask what types of con-
tracts and accounting methods would reduce the potential loss which arises
from the conflicts of interest between various parties in an organization. Watts
predicts that the more fixed assets an organization controls, the more likely the
financial statements will contain charges for maintenance and depreciation in

*The comments of ClitT Smith, Ro Verrecchia, Ross Watts, and Jerry Zimmerman are gratefully
acknowledged.

111n- “t01/90/$3.5001990, Elsevier Science Publishers B.V. (North-Holland)

208 R. W. Holthausen, Accounting method choice

order to reduce the incentive managers might have for allowing equipment to
deteriorate. Leftwich (1983) discusses the accounting measurement rules that
are negotiated in private corporate lending agreements in order to more
efficiently monitor the stockholder-bondholder conflict. He determines that
private lending agreements which rely on accounting numbers often deviate
from the set of generally accepted accounting principles in order to more
efficiently monitor the conflict of interests between stockholders and bond-
holders.
The notion that accounting method choice and the form of financial
statements could be driven by opportunistic behavior was also visible in the
field’s early work. For example, Watts and Zimmerman (1978) take the view
that managers lobby for accounting standards so as to maximize their own
utility, where a manager’s utility is affected by the firm’s stock price and the
manager’s compensation. Unless one is willing to assume that a manager’s
human capital declines by the amount of any loss in firm value which results
from the opportunistic choice of accounting methods as opposed to the most
efficient choice of accounting methods (such that Jim value is maximized), a
self-interest theory of accounting choice need not lead to the same predictions
about the selected set of procedures as the efficiency perspective.
Motivating accounting choice on opportunistic behavior gained further
favor when researchers started to take the form of the contracts the firm has
outstanding as given and did not explicitly consider the implications of a
multiperiod horizon. Under these conditions, the accounting method a man-
ager would choose is driven by how the choice affects the existing contracts
without considering how future contracts might be written. From this perspec-
tive and some additional assumptions come hypotheses such as: managers will
tend to choose more income-increasing techniques the greater the firm’s
leverage in an effort to reduce the extent to which accounting-based debt
covenants are binding, or managers choose income-increasing techniques to
increase their bonuses if their compensation is directly tied to accounting
earnings. These hypotheses arise not from maximization of firm value but
from a transfer of wealth between bondholders, shareholders, and manage-
ment which increases management’s utility because of their holdings of stock
and stock options and because of their bonus compensation plans.
Another rationale for accounting choice is the information perspective
discussed in Holthausen and Leftwich (1983). If managers have a comparative
advantage in providing information about their firms, we would expect them
to be compensated in part on the basis of their ability to provide information
about the future cash flows of the firm. Thus, the information perspective
suggests that accounting methods are chosen to reveal managers’ expectations
about the future cash flows of the firm. Note that the contracting and
information perspectives agree that there is an association between accounting
 R. W. Holthausen, Accounting method choice 209

methods and cash flows, but they disagree on the causality. The contracting
perspectives (either efficient contracting or opportunistic behavior) suggest
that the accounting methods chosen affect the firm’s cash flows (choose the
most efficient methods to maximize firm value or behave opportunistically to
transfer wealth), while the information perspective suggests the methods
chosen provide information about the future cash flows of the firm, but do not
affect them directly.
These three explanations for accounting technique choice are not mutually
exclusive. All may be partial explanations of observed accounting choices and
lobbying behavior in the standard setting process. In looking at the literature
in retrospect, it appears that more of the published research has been predi-
cated on the opportunistic behavior of managers rather than from an efficient
contracting perspective. The information perspective has not been tested. This
may be the case because testable predictions based on the efficient contracting
and information perspectives have eluded researchers to a great extent. The
papers by Malmquist (1990) and Mian and Smith (1990) both take an efficient
contracting view of the world, and thus serve as useful tools for discussing the
potential merits and problems associated with trying to address accounting
choice from this perspective. Both papers experience two difficulties in varying
degrees:

1. delineating a well-supported set of maintained assumptions that result in

hypotheses about how a particular accounting method choice affects the
monitoring efficiency of an accounting-based contract, and
2. distinguishing hypotheses based on an efficient contracting perspective
from predictions based on the opportunistic behavior or information per-
spectives.

Interpretation of the evidence in the papers is limited by the simultaneous

occurrence of both difficulties. In general, researchers do not seek direct
evidence of their assumptions, rather, they look for evidence consistent with a
theory which is based on a given set of assumptions. For example, researchers
did not attempt to reject the Capital Asset Pricing Model by determining
whether there were taxes or transactions costs. However, if the data cannot
distinguish between alternative views of the world, readers’ interpretations of
the evidence will depend on how credible they view the assumptions that
underlie the competing theories.
I will not discuss the Malmquist or Mian and Smith papers in great detail.
Rather, I will use them as a focal point for my discussion about the three
perspectives to the accounting choice literature which I have discussed. I
discuss the Malmquist paper in section 2 and the Mian and Smith paper in
section 3. Some brief concluding comments are offered in section 4.
210 R. W. Holthausen, Accounting method choice

2. Comments on ‘Efficient contracting and the choice of accounting method in

the oil and gas industry’ by David H. Malmquist
The premise of Malmquist’s work is that accounting methods, in this case
either full cost or successful efforts, are chosen to enhance the efficiency of
contracting and monitoring arrangements. The two chief difficulties encoun-
tered by Malmquist are relating the choice of full cost or successful efforts
accounting to the monitoring efficiency of a contract, and distinguishing the
efficiency-based hypotheses from those based on the opportunistic behavior of
managers. I will discuss each of these two difficulties in turn.

2.1. Maintained assumptions leading to testable implications about ejiciency

The following are the set of maintained assumptions that Mahnquist uses to
make predictions about the choice of full cost or successful efforts based on
efficiency grounds.

1. The probability that a securities underwriter will be sued by a shareholder

of a bankrupt firm increases as the stated book value of the equity at the
time of the offering is reduced, holding the market value of the equity
constant. Thus, the probability of a suit can be reduced by choosing full
cost instead of successful efforts.
2. The efficiency associated with monitoring debt contracts increases as the
observables used in the contracts which signal financial distress are more
accurate. A firm with large assets relative to liabilities and many indepen-
dent drilling projects will derive a truer picture of financial distress using
the successful efforts method, while a firm with small assets relative to
liabilities and few independent projects will derive a truer picture of
financial distress using full cost accounting.
3. Compensation contracts which are written on observables related to man-
agerial performance increase the incentives of managers to perform well
(relative to a straight salary) and also increase the risk borne by the
manager. The most efficient contract will be written on the least noisy
measure of managerial performance as it enhances incentives while mini-
mizing the risk borne by the manager. Moreover, full cost in general gives a
iess noisy estimate of the firm’s true earnings. Therefore the greater the
proportion of assets devoted to drilling and exploration, the more likely a
firm will choose full cost.
4. Larger firms are more likely to have resources taken by the government
than small firms. Using successful efforts rather than full cost accounting
reduces the expected value of these expropriations.
 R. W. Holthausen, Accounting method choice 211

5. Contracting technology or institutional constraints make it more costly to

tailor the set of accounting principles used in public debt agreements than
private debt agreements.

These assumptions taken together form the basis of Malmquist’s five hy-
potheses. Some of these assumptions have been used in the accounting choice
literature previously. For example, Assumptions 4 and 5 have appeared
repeatedly. Assumption 1 has not appeared in the literature before, but it is
not unlike other assumptions that have been used in this literature, in that it
introduces some imperfection or cost of information or contracting. In this
case, it is assumed that it is costly to convince a court that differences in stated
book values due solely to differences in accounting methods are irrelevant for
valuation purposes. This is very similar in spirit to the assumptions which
drive the ‘political cost’ prediction.
Other assumptions in the Malmquist paper are different from much of the
previous work. In particular, Assumptions 2 and 3 rely on assumptions about
the ability of accounting numbers, based on either full cost or successful
efforts, to accurately signal financial distress and managerial performance
under different conditions. Personally, I question whether the accuracy of
signalling financial distress or managerial performance using full cost or
successful efforts is adequately captured by the debt to net tangible assets ratio
and the relative proportion invested in exploration and production. Moreover,
why don’t estimates based on proven reserves more accurately signal financial
distress than either successful efforts or full cost accounting in a cost-efficient
manner? Perhaps the estimates based on proven reserves are more accurate but
are not cost-effective because of the cost of producing those statements.’
Malmquist’s difficulty in structuring his arguments illustrates the problems
researchers have faced in providing empirical tests of the notion that account-
ing choice is driven by efficiency considerations. First, relatively little is known
about the tradeoffs involved in writing and monitoring contracts. Second, the
empirical tests do not reflect detailed knowledge of how alternative accounting
methods affect the financial statements of firms under different conditions.
Thus, it is questionable whether the tests adequately address whether a
particular accounting choice affects the monitoring capabilities of those con-
tracts. Malmquist’s difficulty in-structuring his tests arises because in general,
we know relatively little about how the choice of a particular accounting
method will more accurately signal financial distress, managerial performance,
or some other attribute that a contract is attempting to monitor. If Malmquist’s

‘It is interesting to note that Malmquist’s limited examination of the contracts, along with the
work of Frost and Bernard (1988) and Press and Weintrop (1990) suggest that bond covenants for
oil and gas firms are more often based on accounting numbers than on the market value of proven
reserves. The sample in Foster (1980) suggests the opposite.
212 R. W. Holthawen, Accounting method choice

maintained assumptions about the conditions under which full cost or success-
ful efforts more accurately reflect financial distress or performance are incor-
rect, then of course his tests are misspecified.
If researchers are going to succeed in demonstrating that accounting meth-
ods are chosen to increase the monitoring capability of various contracts,
progress will have to be made regarding the effects of different accounting
methods on the monitoring characteristics of those accounting-based con-
tracts. Absent that, it seems unlikely that an accounting choice literature based
on economic efficiency will make much progress.

2.2. Distinguishing e#ciency considerations from opportunistic behavior

The second major problem that Malmquist faces is distinguishing between
the efficiency view of the world and hypotheses about the opportunistic
behavior of managers. Lilien and Pastena (1982) in their study of full cost and
successful efforts take the opportunistic behavior perspective for at least some
of their predictions. For example, they argue that firms with high debt to
equity ratios are closer to default and will thus want to relax those constraints
by choosing full cost. Moreover, they argue for similar reasons that firms with
more exploratory risk will be more likely to choose full cost. While Malmquist
and Lilien and Pastena do not use precisely the same measures of exploratory
risk and debt-equity ratios, the predictions of the two papers with respect to
the association between accounting method choice and these variables are
identical. Moreover, both find evidence consistent with their hypotheses.
Unfortunately, since the predictions of the Malmquist and Lilien and Pastena
papers are identical, there is no way to determine which of these competing,
but not mutually exclusive hypotheses is more consistent with the data.2
Since there is a competing explanation for the results reported by Malmquist,
readers of this paper are left to judge for themselves how to interpret the
evidence. Is it evidence of choosing accounting methods opportunistically or
choosing accounting techniques to enhance the monitoring characteristics of
various contracts, or both? While Malmquist interprets his results as evidence
of efficient contracting, I suspect that many readers will not interpret the
evidence accordingly. This arises because there is no evidence nor any care-
fully crafted arguments which support the critical assumptions of the paper

2Malmquist does report one test to address this issue in section 6. He reestimates his basic
regressions including dummy variables for various types of management compensation plans,
which indicate whether those plans are tied to market value, accounting earnings, both market
value and accounting earnings, or neither. None of the compensation variables are significant.
Malmquist states that ‘the results provide no hint that choice of accounting methods in this
industry is the result of managers’ abiity to enrich themselves by this choice (full cost or
successful effort) through accounting-based management compensation plans’. I view those tests
as inconclusive given the use of dummy variables to proxy for the more complicated schemes used
in most compensation agreements. [See Healy (1985).]
 R. W. Hdthausen, Accounting method choice 213

which I discussed previously. If those assumptions had more support, I suspect

more readers would interpret the paper as some evidence of accounting
method choice reflecting efficient contracting.3
While Malmquist reports significant associations between accounting method
choice, size, leverage, and proxies for the relative importance of exploration
and production activities, observing those associations in the oil and gas
industry in yet another study provides relatively little new insight given the
alternative explanations for the results. The primary strength of the paper is in
its attempt to consider the efficiency perspective in the choice of accounting
methods.

3. Comments on *Incentives for unconsolidated financial reporting’ by Shehzad

Mian and Clifford Smith
Mian and Smith analyze the incentives to report the performance of
financial subsidiaries on a consolidated or unconsolidated basis prior to
Financial Accounting Standards Board Statement 94. Mian and Smith conjec-
ture that the more interdependent the parent and subsidiary’s activities are,
the more likely the financial statements will be presented on a consolidated
basis. The three areas of potential interdependence that are identified include
operating, information, and financial interdependencies.
The Mian and Smith paper raises interesting organizational and accounting
issues. With regard to organizational form, we know that corporate activities
are produced along a spectrum: within nondivisionalized firms, in separate
divisions of a firm, in separate subsidiaries of a firm, or through externally
contracting with another firm. Production of the activity within a subsidiary is
probably closest to producing the product externally since two separate legal
entities are involved.
Mian and Smith address the issue of conditional on a subsidiary, does the
company consolidate its external financial reports. While certainly an interest-
ing issue, it is not clear to me how much progress can be made on this issue
without greater understanding of the more basic question - when do activities
take place within a nondivisionalized firm, within a divisionalized firm, within
a subsidiary, or outside the firm, and why? As Mian and Smith recognize,
without greater knowledge of the tradeoffs involved in choosing among alter-
native organizational forms, some important factors in the consolidation
decision may be missing.
The sample selection implicit in addressing this issue is potentially con-
tentious as well. Mian and Smith examine the reporting of firms that have

‘AsI stated previously, I am not taking the view that the assumptions of a theory have to be
proven in order lo validate the theory. Theories are supported by consistent evidence. However,
when there are alternative explanations that are consistent with the same evideqce, readers till
tend lo choose among the theories based on the assumptions that underlie the theory.
214 R. W. Holthausen, Accounting method choice

formed subsidiaries and then test hypotheses based on the degree of interde-
pendence between the parent and subsidiary. They argue, however, that the
activities of a firm are more interdependent in a divisional&d firm than in one
where the firm organizes into a parent and subsidiaries. If the same financial
activities take place within both types of firms, some element other than
interdependence must be an important influence on organizational form, and
could be influencing the consolidation decision as well. Hence, there could be
an important omitted variable in the analysis. Since we know relatively little
about the tradeoffs involved in choosing among organizational forms, docu-
menting whether these activities take place within divisionalized firms would
be useful evidence for assessing whether the sample selection procedure leads
to any problems of inference. Despite these potential limitations, it is useful to
see how Mian and Smith deal with the problems of obtaining testable
predictions based on efficiency grounds and in distinguishing between alterna-
tive hypotheses.

3.1. Critical assumptions and alternative hypotheses

Mian and Smith rely on the Klein, Crawford, and Alchian (1978) argument
that it is easier to control activities that take place within the firm than
activities which occur externally. Hence, the more firm-specific the activity, the
more likely it will occur within the firm. Mian and Smith hypothesize that the
firm has more control over an activity if it takes place within a consolidated
subsidiary than within an unconsolidated subsidiary. Hence, activities which
the firm wants to control more closely will be organized within consolidated
subsidiaries. This is the motivation for all of the tests which follow, so it bears
further analysis.
Mian and Smith’s analysis critically relies on two assumptions. The first is
that as the interdependence between the parent and subsidiary increases, the
demand for consolidated statements increases because of control considera-
tions, such as assessing managerial performance and determining compensa-
tion. The second is that it would be more costly and result in poorer
monitoring to use a different basis of consolidation internally and externally.
Mian and Smith’s analysis would be enhanced if the critical assumptions
were further clarified. With regard to the first critical assumption, Mian and
Smith seem to have in mind that in companies where the activities of the
parent and subsidiary are more interdependent, controls and contracts which
rely on accounting numbers (e.g., the assessment of managerial performance)
will weight the consolidated statements of the organization more heavily than
in organizations where there is less interdependence. Thus, the form of the
contracts within organizations will change as the degree of interdependence
changes. For example, the compensation of the manager of a subsidiary is
more likely to rely at least partially on the income of the consolidated entity
 R. W. Holthawen, Accounting method choice 215

rather than just the income of the subsidiary, the more interdependent the
activities of the parent and the subsidiary.4 Since this is a critical assumption
in the analysis and is of interest in its own right, it would be interesting to
know about the extent of cross-sectional variation in the terms of contracts
across firms as a function of their organizational form. (I am not suggesting
Mian and Smith could have done this easily given the data is not generally
available.)
With regard to the second assumption, Mian and Smith argue that audit
costs will be reduced and more efficient monitoring will result if the firm
chooses the same form of reporting for most (all) of their contracts. With
regard to the audit costs, an auditor would typically audit the subsidiaries of a
company regardless of whether the financial statements are consolidated or
not. If the statements are to be consolidated the auditor would typically start
with the audited financial statements of all the individual units and then
consolidate them, being careful to eliminate intercompany transactions. Thus,
it is not clear that the audits of a company on a consolidated and unconsoli-
dated basis would be very different or that their costs would be significantly
different.’
With regard to the assumption that firms use the same basis of reporting
across all contracts we know that, in general, there is some variation in the
reporting methods used across the contracts that firms write, for example
public and private debt contracts. However, the evidence in table 8 of Mian
and Smith is interesting because it indicates that firms tend to choose the same
basis of reporting (consolidated or unconsolidated) for external reporting
purposes and for contracting purposes in public debt agreements.6 It would be

4While Mian and Smith’s assumption may be correct. I believe it is likely that the financial
statements of a subsidiary produced on a stand-alone basis are important in organizations
regardless of the consolidation decision. We know, for example, that even within divisionalized
companies (which I would argue are more integrated than in an organization with parents and
subsidiaries), the financial performance of divisions are used for assessing the performance of
division managers and for controlling the assets of the organization. Thus, I anticipate that the
financial performance of a subsidiary, judged on a stand-alone basis, is an important component
of control within an organization, regardless of the degree of interdependence between the
subsidiary and the parent.
‘Two dih’erences that could arise are that materiality considerations may drive an auditor to
audit an unconsolidated subsidiary more than if that subsidiary were consolidated, and an auditor
may devote more resources to auditing intercompany transactions if the financial statements are to
be presented on a consolidated basis. At a minimum, companies reporting on a consolidated basis
have both the unconsolidated and consolidated numbers. It is conceivable that companies which
report on an unconsolidated basis never generate the consolidated numbers.
6Table 8 indicates that in public debt agreements, firms which report only unconsolidated
subsidiaries always use separate entity balance sheet data in their bond covenants if they use
balance sheet data at all, and firms which report only consolidated subsidiaries always use
consolidated balance sheet data, if they use balance sheet data at all. This evidence is consistent
with Mian and Smith’s maintained assumption that firms will in general use one method of
reporting for a variety of purposes.
216 R. W. Holthawen, Accounting method choice

very useful and would add to our understanding of contracting if we could

learn more about the cross-sectional variation in reporting methods observed
in the contracts of a given firm.
Mian and Smith document interesting associations between the consolida-
tion policies of firms, the three identified interdependencies, the location of the
subsidiary and the existence of guarantees. However, because of my reserva-
tions about the critical assumptions on which the tests are based and because I
believe there is a potential competing hypothesis that is consistent with the
data, I am uncertain about the appropriate interpretation of the evidence.
As an alternative, but not mutually exclusive (nor well specified hypothesis)
consider the information perspective discussed previously. With respect to the
consolidation decision, the information perspective would hypothesize that as
the magnitude of intercompany transactions increases, the probability that a
manager would provide consolidated statements increases. The rationale for
this hypothesis is that while it is relatively easy to approximate the combined
accounting earnings with the unconsolidated financial statements of the parent
and subsidiary, it is difficult to approximate the cash flows of the combined
entity unless detailed disclosures of intercompany transactions are included.
Therefore, as the interdependence between the parent and the subsidiary
increases (which is probably highly correlated with the magnitude of the
intercompany transactions), the probability that a firm will present con-
solidated statements increases because the manager believes examining the
combined entity’s results is more informative about future cash flows than
examining the separate entity results. Thus, much of the Mian and Smith
evidence is potentially consistent with this view of the world as well. Since the
information perspective is admittedly not well specified (such is the privilege
of discussants), it is not clear if these two hypotheses can be distinguished
without additional specification.’
The Financial Accounting Standards Board and the popular press provide
another alternative hypothesis which Mian and Smith address. This oppor-
tunistic-based hypothesis alleges that one motivation for reporting on an
unconsolidated basis is to reduce the amount of reported debt by hiding the
subsidiary’s debt. Presumably, this allows the firm to ‘fool’ various users of the
financial statements into believing the debt levels are lower than actual. Mian
and Smith argue that if this is an important rationale for the decision, other
forms of off-balance-sheet financing would be used more often by 6rms which
don’t consolidate than by firms which report on a consolidated basis. No

‘Mian and Smith argue in section 2.2 that the most informative statements are unconsolidated
financial statements if complete disclosure of intercompany transactions is provided. The informa-
tion perspective, as I discuss it, suggests the manager’s choice of consolidated or unconsolidated
financial statements provides information about how the manager believes the future cash flows of
the firm can best be predicted (i.e., using separate entity or consolidated results). As the operations
of the subsidiary and parent become more interdependent (due, for example, to price discrimina-
tion effected through a credit subsidiary) the consolidated statements become more informative.
 R. W. Hdthawen, Accounting method choice 217

association is found between operating leases and unfunded pension liabilities

(other forms of off-balance-sheet financing) and the consolidation decision. As
such, Mian and Smith cast doubt on this alternative hypothesis.
The Mian and Smith paper provides interesting descriptive evidence on the
organizational form and consolidation decisions of firms. In particular, the
evidence documents the rich diversity of accounting choice in firms which
organize into a parent-subsidiary relationship. While the evidence is consis-
tent with the efficient contracting perspective as put forth by Mian and Smith,
it also appears to be consistent with an information perspective that assumes
that managers choose accounting methods in order to increase the informed-
ness of the financial statements.

4. Concluding remarks
In summary, the strength of the two appears is in their attempt to structure
a set of tests which assume that accounting methods are chosen to increase the
efficiency of contracts in monitoring the conflicts of interest among agents in
the firm. There have been relatively few attempts to test efficiency-based
arguments in the accounting literature. In structuring those tests, the papers
must deal with two difficulties:

1. delineating how a particular accounting method affects the monitoring

capabilities of accounting based contracts, and
2. distinguishing hypotheses based on economic efficiency from those based
on the opportunistic behavior and information perspectives.

The papers achieve varying degrees of success in dealing with these two issues.
Because of that, it is difficult to interpret the papers as strong evidence of
accounting method choice being driven by efficiency considerations. Neverthe-
less, the attempts to relate accounting technique choice to an efficient contract-
ing perspective are interesting.
The accounting choice literature, which arose from a literature on efficient
contracting as a means of dealing with the conflicts of interest among agents,
has nearly abandoned the view that accounting choice is based on efficiency
considerations in favor of hypotheses based on opportunistic behavior. The
literature on accounting method choice would be enhanced by further at-
tempts to structure tests from the efficient contracting perspective, as
Malmquist and Mian and Smith have attempted, or from the information
perspective.8 Hopefully, these papers will stimulate future research in this
area.

‘Additional prescriptions for improving the literature can be found in Holtbausen and Leftwicb
(1983) and Watts and Zimmerman (1989).
218 R. W. Holthauren, Accounting method choice

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