Research Papers Positive Accounting Theory

Research Papers Positive Accounting Theory-73
It is said that PAT seeks to predict and explain why managers choose to adopt particular accounting methods in preference to others but says nothing as to which method a firm should use.We believe that PAT and its hypotheses will continue to be a rich field of empirical research and the basic questions that it raises are still relevant today.

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In 1976, the publication of Jensen and Merckling's article on agency theory had a major impact on PAT [14].

In agency theory, the firm is analysed as “a nexus of contracts” and this concept is accepted by positive accounting research.

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

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

This theory is based on work undertaken in economics and is heavily dependent on the efficient market hypothesis, the capital assets pricing model, and agency theory.

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Positive research began in early 1960s and opened a new era in accounting literature, using economic models and statistical processing in empirical studies.We then investigate its foundations using the works of Watts and Zimmerman.We describe how empirical studies added unique insights into its development. Finally, we outline and discuss the significant contribution of PAT to our understanding of corporate reporting practices.We conclude that this theory has generated several useful insights on managers' reporting decisions.In this section, we examine the forces and the publications that had a major impact on the emergence of PAT.The positive accounting theory (PAT) relied in great part on work undertaken in economics and was heavily reliant on the efficient market hypothesis, the capital assets pricing model, and agency theory.PAT has led to a large amount of empirical studies.Academic studies on the factors that affect a firm's accounting choices triggered a paradigm change in accounting research, altering the nature of literature from prescriptive to predictive.The construct of the new paradigm was first articulated by Ross Watts and Jerold Zimmerman with the publication of their revolutionary articles in —“Towards a Positive Theory of the Determination of Accounting Standards” in 1978 and “The Demand for and Supply of Accounting Theories: The Market for Excuses” in 1979.The first serious discussions and analyses of positive research on accounting emerged in late 1960s with the pioneering studies of Ball and Brown [1] and Beaver [2].These two seminal publications provide significant evidence of the information content in accounting earnings announcements, i.e., the earnings reflect some of the information in security prices.


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