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Author(s): William R. Kinney, Jr.
Source: The Accounting Review, Vol. 61, No. 2 (Apr., 1986), pp. 338-350
Published by: American Accounting Association
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EDUCATION RESEARCH
Frank H. Selto, Editor
Empirical
Research
Accounting
For
Ph.D.
Design
Students
encountered problem
in accounting Ph.D. programs is
that first-year students do not have
background in empirical research in accounting. Few B.B.A., M.B.A. or M.Acc.
programs include courses in empirical research and many students have not seriously considered its nature. Yet, such an
introduction is necessary if Ph.D students
are to efficiently relate other courses to
substantive problems in accounting and
be able to take full advantage of accounting workshops.
The purpose of this paper is to show
how a basic framework for evaluating
empirical research in accounting can be
obtained in a short introduction. This can
be done at the start of the first term course
and provides a context for further work in
philosophy of science and statisticaldesign
as well as substantive areas of accounting.
FREQUENTLY
William R. Kinney, Jr. is Price Waterhouse Auditing Professor at the University of Michigan.
Manuscript received September 1984.
Revisions received April 1985 and August 1985.
Accepted September 1985.
338
Kinney
339
340
Kinney
341
..,ZIZ2,
...
For simplicity, assume that X is measuredat only two levels. Eitherthe observed
Yis from the "control" group that receives
no "treatment" or from the treatment
group that receives the treatment. Alternatively, the two groups could simply be
different on some relevant dimension
(e.g., to test theories about accelerated
depreciation, the control group might be
defined as those firms that use straightline and the treatment group as those that
use accelerated).
Also for simplicity, assume that there is
a singleprior-influencefactor Vthat effects
Yand Vhas the same effect on Ywhether
the subject is from the control or treatment group. Furthermore, there are no
contemporaneous Zs that affect Y and
the model determining Y is:
(1)
Yij=Bo+BX,+B2Vj+ ej,,
where Yij is the value of the dependent
variable for the "j"th subject in the "i"th
treatment, Bo is the intercept for the control group, Xi is an indicator variable
(zero for the control group and one for
treatment), Bo+ B1 is the intercept for the
treatment group (that is, B1is the effect of
treatment), B2is the regression coefficient
relating Vto Y, and eij is a random error
term. The eij term will include the effects
of other Vs and Zs that are here assumed
to be negligible and randomly distributed
between the two groups, and eijis assumed
to have expectation zero and be uncorrelated with either X or V.
For the simple model of equation 1, a
plot of the expected values of Y given V
for both groups will be parallel lines with
possibly different intercepts. The difference in intercepts is the effect of the treatment (B1). Figure 1 shows the components
6 Some Zs may be expectations,at the time of the
study,of still futurevaluesof X, Y, V, and otherZs.
342
FIGURE 1
Y VALUES
FORNONEQUIVALENT
GROUPSUNDERANOVA, ANCOVA, ANDMATCHING
y
X+02V
~~~~~~~~~~~~Y=00+
X
ANOVA
/-
andMatching
~~~NCOVA
~~~~~~~~~~I
lI
_~~~~~~ I
V.
Vs
Matches
Kinney
343
2. matching on Vex post (i.e., matching after X has been chosen by the
subject or assigned by Nature), and
3. using covariance analysis to statistically estimate and remove the effect of V.
The first approach ignores V, and results
can be analyzed with a single-factor analysis of variance (ANOVA). The second
approach physically equates the treatment
groups with respect to V, and results can
be analyzed using a randomized block design. The third approach "statistically"
equates the groups, and results can be
analyzed using analysis of covariance
(ANCOVA).
Each of these approaches is discussed in
turn, along with some of the advantages
and limitations of each for experimenters
and passive observers.
Ignoring V
As discussed above, ignoring a potential V is generally inadvisable due to the
unknown effect of V. A negligible effect
is the hopedfor result for any unmatched,
unmeasured, or unknown Vsor Zs. However, most real-worldevents have multiple
causes and a negligible overall effect is
unlikely. Furthermore, larger samples
will not help in researchdesignsthat ignore
systematic effects of V.
While expost matching and covariance
analysis can't account for all possible Vs
and Zs, they can reduce the risk that some
potentially important Vs and Zs disguise
the true effect of X. Figure 1 shows the
relevant sampling distributions for the
three approaches applied to the example.
As shown in the relativelyflat distributions
on the left margin, ANOVA is based on
the marginal distribution of Y with no
consideration of V.
Ex Post Matching
In many situations, the researcher selects a sample after the phenomenon of
interest has taken place. Often, the researcher selects a sample of subjects from
the treatment group and then selects a
subject from the control group with V
equal or similar to V for each treatment
subject. This ex post matching on V is
probably the most commonly used design
for passive observational studies in accounting.
For ex post matching, the model assumed to determine Y is:
m
=
Bo
+BIX,+
(2)
Y,
E BjMj +eij,
j2
344
345
Kinney
III. ALPHA,
2X-2
6,
2,-2
(1 /D)]
+ to55]) (f aD)]b'
(1963,p
346
347
Kinney
FIGuRE2
SAMPLINGDIsRIuBUTIONSOF d
a. HighPower
OI
Rt
b. LowPower
l~~~~~~~~~~~
l.0
l~~~~~~~~
RejectHo~
Reec
l~~~~~~~~~~~~~Rc
lY~o)M
jlal
Ho
348
results against the null are "significant." Especially interesting or innovative results may be submitted
on higher than .05 significance (or
alternatively, the probability at
which the results are significant are
reported), but rarely does an editor
see results with significance levels
above .15. This prejudice need not
exist if not rejecting the null gives
reasonable credibility to the null."7
2. Ancillary hypotheses will be elevated in the exposition of results.
Secondary hypotheses that are significant ex post will receive more
attention than other secondary hypotheses and perhaps the primary
hypotheses. Suggestions will be
made that these results warrant
further study, when in fact one
would expect about one in ten nonsense relationships to be significant
at the .10 level.
3. Alternative operationalization of
variables or their functional form
will be conducted only if "preliminary" results are insignificant. The
extent to which this search activity is
justified is open to debate since
most theories don't imply a single
measurement or functional form.
4. The search for errors will be asymmetric. Outliers that impede rejection of the null hypothesis will
tend to receive more diligent attention than those that favor rejecting
the null. If significant results are
16 The choice of 6 is somewhat arbitrary, but in planning it is useful to consider reasonable or plausible values
for the true treatment effect of X. Alternatively, one
might choose the smallest effect that informed persons
would agree is empirically "important" and therefore
worth knowing about if it exists, or the largest amount
that one could reasonably expect.
" In classical statistics, not rejecting the null is not
equivalent to accepting the null. However, non-rejection
by a reasonably powerful test or series of tests does
increase one's subjective degree of belief in the null.
Kinney
349
350
REFERENCES
Abdel-khalik, A. R. and B. B. Ajinkya, Empirical Research in Accounting: A Methodological Viewpoint,
Accounting Education Series No. 4 (American Accounting Association, 1979).
Ashton, R. H., Human Information Processing in Accounting, Accounting Research Study, No. 17
(American Accounting Association, 1982).
Ball, R. and G. Foster, "Corporate Financial Reporting: A Methodological Review of Financial
Research," Studies in Current Research Methodologies in Accounting: A Critical Evaluation," Journal
of Accounting Research (Supplement 1982), pp. 161-234.
Boulding, K. E., "General Systems Theory-The Skeleton of Science," Management Science (April 1956),
pp. 197-208.
Cochran, W. G., Planning and Analysis of Observational Studies, edited by L. E. Moses and F. Mosteller
(John Wiley & Sons, Inc. 1983).
Cook, T. D. and D. T. Campbell, Quasi-Experimentation Design & Analysis Issues for Field Settings
(Houghton-Mifflin Company, 1979) especially chapters 3 and 4.
Greenwald, A. G., "Consequences of Prejudice Against the Null Hypothesis," Psychological Bulletin
(January 1975), pp. 1-20.
Lev, B. and J. A. Ohlson, "Market-Based Empirical Research in Accounting: A Review, Interpretation,
and Extension," "Studies in Current Research Methodologies in Accounting: A Critical Evaluation,"
Journal of Accounting Research (Supplement 1982), pp. 249-322.
Libby, R., Accounting and Human Inlormation Processing: Theory and Applications (Prentice-Hall,
Inc., 1981).
Ostle, B., Statistics in Research, 2nd Edition (The Iowa State University Press, 1963).
Rosenbaum, P. R., "From Association to Causation in Observational Studies: The Role of Tests of
Strongly Ignorable Treatment Assignment," Journal of the American Statistical Association (March
1984), pp. 41-48.
Simon, J. L., Basic Research Methods in Social Science: The Art of Empirical Investigation, 2nd Edition
(Random House, Inc., 1978) especially chapters 3, 7, and 11.
Tversky, A. and D. Kahneman, "Belief in the Law of Small Numbers," Psychological Bulletin (August
1971), pp. 105-1 10.
Watts, R. L. and J. L. Zimmerman, Positive Accounting Theory (Prentice-Hall, 1986).