Seeds of Innovation in Accounting Scholarship

Greg Waymire

AAA Annual MeetingDenver, COWeds. August 10, 2011

Overview

1. The problem: Low innovation & stagnant evolution in accounting scholarship.

2. How did things get to be this way?3. How sticky is the problem?4. What’s the cost & why should we care?5. What can AAA (i.e., “we”) do?

• MAIN PROPOSITION– Innovation in accounting scholarship is too limited with the

result being that our discipline is prone to conformist thinking and intellectual indolence. In short, accounting scholarly evolution is stagnant.

• SYMPTOMS– Research is overly derivative.– Too much careerism.– Limited scholarly debate/discussion.– Too much reliance on standard-setters’ “needs” for

research topics.– We think we know more than we actually know.

The Challenge

Source: Hopwood, A. 2007. Whither Accounting Research? Accounting Review. (82: 5) 1367-1374.

EVOLUTIONARY CHANGE

• Evolution: Change in some population-wide characteristic through time from ancestral population to a descendant population

• Forces:– Selection: Disappearance of units in the ancestral

population due to non-survival into the descendant population.

– Transformation: Some units change their character over time.

– Migration: New units present in descendant population that were not in the ancestral population.

EVOLUTIONARY FORCES

Present Evolution of Accounting Scholarship

1. Some ideas are disappearing, either because they are selected against or because they transform to be more like the others (i.e., black to either gray or white).

2. One category is replicating itself at a high rate. 3. There is no migration into the population.

NET EFFECT: HOMOGENEITY IS A RECIPE FOR EXTINCTION!

How did things get to be this way?

• Increasing accounting faculty salaries led to contraction in the number of assistant professor hires.

• Fewer assistant professors coupled with higher teaching expectations from MBA rankings decreased resource allocations to research and PhD education.

• In response, accounting groups focused their research emphasis to sustain benefits from critical mass. The primary focus became “financial archival” research to better align with finance, emphasis of standard setters, and journals’ increasing focus.

• Quantified research quality assessment focused on citations and publication frequency in “A” journals has led to research focused more on “hot topics” and review articles rather than producing insights about fundamental issues.

Escalating Accounting Faculty Salaries

A Simple Back-of-the-Envelope Calculation:

Rookie CompensationYear Nominal $ Real $

1985 $55,000 $55,000

2007 $200,000 $104,000

Declining Investment in New Assistant Prof Hires

Table 3, Fogerty & Markarian (2007), “An Empirical Assessment of the Rise and Fall of Accounting as an Academic Discipline,” Issues in Accounting Education.

1982Assistants 497 (33%)Associates 357 (24%)Professors 453 (30%)Non-Tenure Track 201 (13%)TOTAL 1508 (100%)

Distribution of Ranks at Doctoral-Granting Accounting at Three Points in Time: 1982, 1992, 2002

1992501 (32%)364 (23%)500 (31%)224 (14%)

1589 (100%)

2002357 (24%)390 (26%)483 (32%)260 (18%)

1490 (100%)

Number of 1985 vs. 2008 Tenure Track Faculty at Big 10, Pac 10, SEC & Big 12 Schools

Decline in PhD Grads from 1990 to 2008

From Hasselback 2009 Directory of Accounting Faculty.

Increasing Focus on Financial Reporting Research

Table 4, Tuttle & Dillard (2007), “Beyond Competition: Institutional Isomorphism in U.S. Accounting Research,” Accounting Horizons.

U.S. Dissertations by Topic: 1995 versus 2005

YearFinancial

Topics

1995 692005 76

Nonfinancial Topics

11332

%

(38%)(70%)

%

(62%)(30%)

Quantified Scholarly Productivity

Accounting & Finance Journal Rankings Based on Impact Factors

Quantified Scholarly ProductivitySome Data on Reference per Article in TAR

April 1981

5 articles averaging 17.8 pages

# References

Mean 19.4

Min 13

Max 28

CITATION INFLATION!!!!!

May 2011

12 articles averaging 30.3 pages

49.8

26

78

Quantified Scholarly ProductivityA Benchmark from Science Magazine

• Research Articles (up to ~4500 words, including references, notes and captions, or ~5 printed pages) are expected to present a major advance. Research Articles include…. about 40 references.

• Reports (up to ~2500 words including references, notes and captions or ~3 printed pages) present important new research results of broad significance. Reports should include…. about 30 references.

NOTE: The shortest article in May 2011 TAR (21 pages) had about 8,100 words exclusive of tables, figures, subheadings, and references.

Limited Innovation in Accounting ScholarshipHow Sticky is this Problem?

• Very sticky, at least in the short-run.• Why?– People are tooled to produce a given type of research. Doctoral

programs are geared towards producing more of the same.– Risk aversion among junior scholars is “rationally” high.– Limited forums for debate, replication, and challenging the

status quo. – Departments will continue to hire what doctoral programs are

turning out, which is geared increasingly to producing incremental financial reporting research.

– Deans have strong financial incentive to hire non-tenure track faculty.

Limited innovation is an opportunity cost

• Is this anything more than a glib throwaway line in our textbooks?• If not, how is accounting a language?

– Function– Form– Mechanisms for evolution & adaptation

• Some encouraging signs – new work looking at the use of language in corporate disclosure.

• Still, we are only beginning to scratch the surface on this issue, and much more is needed.

Example 1: Is accounting the language of business?

Limited innovation is an opportunity cost (cont.)

Neuronal Activation in the Ventral Tegmental Cortex Reported by Fiorillo et al. (2003)Based on Single Cell Recording for Two Macaque Monkeys in Response to ProbabilisticSignals about Forthcoming Rewards

StimulusSale Made

StimulusSale Made

RewardCash Collected

RewardCash Collected

Firing at actual receipt of reward when probability low

Firing at signal of future reward when probability high

Example 2: Are we homo accounticus?

Limited innovation is an opportunity cost (cont.)?Example 3: Why is accounting present at the emergence of complex

human civilizations?

Innovation in Accounting Scholarship

Heterogeneity via new ideas generated through transformation or reproduction of different types.

IS THIS POSSIBLE?

The Aspiration

Source: Hopwood, A. 2007. Whither Accounting Research? Accounting Review. (82: 5) 1367-1374.

Can We Change Matters in the Long-Run?Planting Seeds of Innovation with Excellence.

• 2011 AAA Strategic Retreat was focused on encouraging innovation in accounting scholarship

• Several promising (preliminary) ideas surfaced at the Strategic Retreat

• The Current Challenge: Continuing the Conversation– Publishing the output– Conversation with broad membership online and at

meetings– Concrete proposals directed at issues that resonate

with membership

AAA Strategic Retreat of May 2011: Focus

• Assertion: Accounting research as of 2011 is stagnant and lacking in significant innovation that introduces fresh ideas and insights into our scholarly discipline.

• Question: Is this a correct statement? If not, why? If so, what factors have led to this state of affairs, what can be done to reverse it, and what role, if any, should AAA play in this process?

Organization of AAA Strategic Retreat• Who was involved?– Four Speakers: Sudipta Basu (for Shyam Sunder),

Chris Chapman, Bill McCarthy, & Don Moser– AAA Executive Committee & persons responsible

for organizing 2012 Annual Meeting, Doctoral Consortium, and New Faculty Consortium

• Format– Initial presentations by speakers followed by

breakouts where participants moved between groups and tangible suggestions were put forth

Early Ideas from the Strategic Retreat in 7 AreasScholarly Retreats: (1) experienced faculty akin to doctoral consortium, (2) scholars and practitioners, or (3) organized around innovative questions posed by AAA members.

AAA White Paper/Monograph: Define challenges in improving scholarly innovation and means for improvement.

Doctoral Education: (1) archive of AAA presentations on different methods and approaches, (2) data repository about PhD programs, & (3) awards for doctoral education excellence

Journals: (1) Leverage potential for online content, (2) TAR section on research innovation, (3) sessions on how to be a good reviewer at doctoral & new faculty Consortia

Big issues Initiative: once every two-three years identify a big issue, put money into prizes that would then be awarded 2 or 3 years hence.

Building Historical Awareness: Vehicles to showcase the highest impact contributions of accounting research published by AAA. Best papers in TAR by decade back to 1920s.

Engagement with Practice: (1) Interactive sessions at doctoral & new faculty consortia. (2) Internships to facilitate research within firms.

Where to Next?Continuing the Conversation

• Putting Strategic Retreat output into the public domain (posting presentations, write-ups on SSRN, and journals)

• Establishing online venue in AAA Commons for discussion and debate by AAA members

• Implementation for proposals that have broad support from AAA members.