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Accounting Forum 31 (2007) 305322

Accounting research: An analysis of theories explored in doctoral dissertations and their applicability to Systems Theory
William Hahn
Department of Accounting and Management, Southeastern University, Lakeland, FL 33801, United States

Abstract This study examined theories used in accounting doctoral dissertations and found that dissertations in this discipline test theories drawn from economics, nance, psychology, and sociology, with 53% from economics and nance and 27% from psychology. Further, a primary conclusion of this paper is that doctoral research in accounting explores subsets of organizational activity consistent with the premises of Systems Theory. 2007 Elsevier Ltd. All rights reserved.
Keywords: Accounting; Research; Systems Theory

1. Introduction In a comprehensive study of accounting theory, the Committee on concepts and standards for external nancial reports concluded that the accounting profession does not have a generally accepted base theory (AAA, 1977). Nevertheless, accounting theorists have focused on the ability of accountants to provide information useful for decision purposes (Carnegie & Napier, 1996) and information usefulness was incorporated into the FASBs (1978) Statement of Financial Accounting Concepts No. 1 as a primary function of the nancial accounting discipline. Similarly, recent editions of college accounting textbooks emphasize the importance of accounting information for the successful conduct of a value adding transformation process (Edmonds, Edmonds, & Tsay, 2003; Ingram, Albright, & Baldwin, 2004; Reimers, 2003). The use of the transformation process as a basis for structuring textbooks highlights accounting informations contribution to organizational growth and prosperity. Textbooks, however, fail to identify Systems Theory (ST) as the framework from which the model is drawn. Furthermore,

Tel.: +1 863 667 5141. E-mail address: bhahn@seuniversity.edu.

0155-9982/$ see front matter 2007 Elsevier Ltd. All rights reserved. doi:10.1016/j.accfor.2007.06.003

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Miller (1972) points out that an organization, regardless of its social function, is a collection of specialized subsystems that must be effectively coordinated in order to grow and prosper. Coordination requires decision-useful information that promotes organizational learning. Senge (1990) posits that an organization does not start as a superior performer. Rather, it learns to achieve through systems thinking. Thus, by omitting ST from accounting textbooks, and discussions of accounting theory, educators overlook not only an inter-disciplinary educational opportunity, but also an opportunity to show how subsystem accomplishment and coordination is important to organizational sustainability. Morgan and Willmott (1993) lament the invisibility of accounting in organizational management textbooks, and point out that students in other business disciplines, such as leadership, marketing, and human resources are not well grounded in accountings contribution to organizational well-being. They encourage authors in these disciplines to incorporate a discussion of the social value of accounting. Interestingly, Morgan and Willmott fail to call for accounting textbooks to do the same in regards to other disciplines. They conclude with a call for increased research that demonstrates the relationships between organizational subsystems that remains unanswered. Similarly, Morgan and Smircich (1980) and Williams (2003) point out that most accounting research, grounded in positivist economic science, has a subsystem orientation. Troubled by the dominance of positivist economic research that imposes a rigid framework on organic, dynamic, multi-dimensional organizations (systems), they encourage a discourse on how accounting benets both organizations and society. The purpose of this study is three-fold: rst, to explore accounting theory from a systems perspective; second, to identify theories employed in accounting research; and third, to stimulate the discourses of accounting and Systems Theory. To accomplish these aims, we examine the accounting professions search for a theoretical framework; through a review of classical literature and by analyzing doctoral dissertations to identify the theories tested. In addition, we appraise ST literature and the theories motivating doctoral dissertations from a ST perspective to assess their relationship to this theoretical framework. It was found that accounting dissertations investigate theories borrowed from the disciplines of economics, nance, psychology, and sociology. The most commonly used theories are the efcient market hypothesis, the capital asset pricing model, and the discounted cash ow valuation model. When considered from an organizational perspective, accounting research is reductive in scope because each study investigates a specic subset of accounting activity. However, all of the theories used in accounting dissertations relate to an aspect of subsystem operation and, therefore, dissertation research was in harmony with the tenets of ST. 2. Literature review 2.1. Early theoretical literature Prior to the conclusion by the Committee on concepts and standards for external nancial reports that a single universally accepted basic accounting theory does not exist at this time (AAA, 1977, p. 1), a robust dialogue on accounting theory was exchanged in the literature, primarily in The Accounting Review. While complete coverage of this debate is beyond the scope of this paper, representative examples highlight the dynamic nature of the discourse. For example, Soujanen (1954) identied among large corporations a trend of embracing a social concept of the rm. In that paper, he dened an organization as a group of persons pursuing a common goal and following certain rules of conduct, the essence of which he drew from

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Cole (1920). Soujanen argued that within an organizational setting, a myriad of decisions are made, all of which aim at the growth and preservation of the organization and remain consistent with the going concern concept. In order to grow and prosper, organizations require information. Similarly, in an exchange of thoughts with Littleton, Chambers (1957) advanced the concept of general accounting theory by noting that accounting information is used by all organizational types and that methods of developing such information is consistent across organizational boundaries. Within this debate, we nd an illustrative theorem in support of the following proposition: [i]n the case of continuing ventures, periodical accounting is a necessary condition or rational action (Chambers, 1957, p. 209). In Chambers theorem, actions represent decisions that must be made in order to conduct operations and this in turn should advance the accomplishment of organizational objectives. As organizations take actions, they change their environment; and therefore, must take new and different actions that require appropriate nancial information for performance monitoring and decision-making purposes. Thus, Chambers (1957) suggests that as an organization transforms resources it must constantly adapt its actions to a changing environment. Commenting on the work of the 19651966 Committee on basic accounting theory of the American Accounting Association, Bedford (1967) concluded that within the domain of an ongoing organization the primary attribute of accounting is the development and communication of information for decision-making purposes. Similarly, Wheeler (1970) points out that a variety of stakeholders use accounting for decision-making purposes and encourages greater attention to theory development in the area of social needs. Finally, Bedford and Ziegler (1975) identify Littleton as a catalyst for the pursuit of a theory of accounting; and Imke (1966) points out that Littletons concept of theory includes a set of actions, objectives, and reasons that lead to the understanding of a business entity by interested parties inside and outside an organization. This theoretical literature was available to the FASB when it established its conceptual framework, and those involved in the developmental process seem to have implicitly considered ST information ow requirements as a relevant proposition. We draw our evidence to support this deduction from the nancial accounting concepts that emanated from their deliberations. First, we identied information as the primary objective of nancial reporting (SFAC No. 1), and second, we established the decision usefulness of information in the corporate governance process (SFAC No. 2) as the characteristic that makes such information valuable. While the FASBs conceptual framework established information as the primary objective of nancial reporting, it did not promote a general theory of nancial accounting. 2.2. Theory versus model In a series of essays devoted to accounting theory, Devine covered a wide range of topics related to accounting theory, principles, and practices. He denes theory as a statement or series of statements which lead to testable predictions (Devine, 1985a, p. 2). Similarly, Hersey, Blanchard, and Johns (1996) dene theory in organizational behavior as something that explains why events occur, or are necessary, and contrast a theory with a model, which they consider a grouping of principles or rules learned and replicated. Babbie (1992, p. 55) denes theory in social research as a systematic explanation for the observed facts and laws that relate to a particular aspect of life whereas a model is a construct that provides insight into how something works as opposed to explaining why it works as it does. Likewise, in accounting, Watts and Zimmerman (1986) consider

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a theory to include both assumptions and hypotheses. Assumptions include necessary denitions and the logic of the relationships between various theoretical components, and hypotheses are predictions of unobserved phenomena relating to the discipline under study. Finally, in sociology, Schaefer (2005) denes a theory as a set of statements that seeks to explain problems, actions, or behavior. An effective theory may have both explanatory and predictive power. That is, it can help us see the relationships among seemingly isolated phenomena as well as understand how one type of change in an environment leads to other changes (p. 8). Schaefers denition incorporates the interdisciplinary positions of Devine, Hersey and Blanchard, Babbie, and Watts and Zimmerman, which, in turn is supported by Shields (1997) who found that most managerial accounting studies use the major social sciences (economics, psychology, and sociology) for theoretical underpinning. Consequently, Schaefers denition is used in the assessment of nancial accounting research and for the investigation of the usefulness of ST as an integrative model. To provide a ST perspective, the following section reviews essential elements of this dynamic theory. 2.3. Systems Theory In a comprehensive review of ST perspectives, such as general system theory, living system theory, and critical systems thinking, Jackson (2000) discusses the relative attributes of available alternatives. These perspectives have a common foundation and this paper uses the term Systems Theory for purposes of presentation and discussion. Barnard (1938) rst classied organizations as systems and identied a need for organizations to interact with their environment in order to coordinate their various components and activities. Consistent with Barnard, Bertalanffy advanced general system theory in a series of articles in which he argued that general system theory is independent of the constructs associated with other disciplines and is applicable to physical, biological, and sociological entities, indeed, to phenomena of any kind (von Bertalanffy, 1950, p. 304). As applied to organizations, general system theory focuses on the entire organization and considers the primary system objective to be sustainability of existence. A system attempts to accomplish this through adaptation brought about by constant interaction with its environment. Subsequent to Bertalanffys work, Wiener (1950) established the need for a feedback loop in order for systems to acquire information relating to either the environment or an organizations transformation process. Such information is then used to change strategic direction or modify internal processes. Boulding (1956) extended the systems concept through the identication of eight levels that he suggested could be used to evaluate system maturity: frameworks (atoms/genes), clockworks (solar system), cybernetic (thermostat), self-maintaining (cell), geneticsocietal (plant), animal (brain/learning), human (sentient/language), socialcultural (family/organizations), and transcendental (unknowable/god). Interestingly, humans are considered individual systems and organizations are social systems populated by groups of people with different skill sets. In this schema, humans and organizations represent the highest knowable levels of system maturity. Ackoff (1971) rened ST by identifying four system classications based on both the behavior and the outcomes realized by a system. The rst two classications are state-maintaining (thermostat) and goal-seeking (automatic pilot) in which outcomes are xed. The only differentiating aspect is that state-maintaining systems have determined behaviors whereas the behavior of

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goal-seeking systems is chosen. The next system is multi-goal seeking (i.e., computers) and has variable and chosen behaviors that result in variable and determined outcomes. Ackoff reserves his highest classication for humans, whom he terms as purposeful, with adjustable and preferred behavior that results in variable and chosen outcomes. Organizations are dened as collections of humans striving for a common purpose with at least one subsystem that has a control orientation that provides information for learning and adaptive purposes. 2.4. Criticisms of Systems Theory Thayer (1972) criticizes ST as promoting hierarchy to a point of impersonalization among operating subsystems. He also posits that the requirement that systems grow to avert entropy results in huge organizations that eventually work at odds with the environment, thereby resulting in destructive activities. Devine (1985b) considers general system theory too general for purposes of developing accounting standards. He considered STs applicability to understanding the role of accounting in organizations and concluded that using an open or closed classication was not useful in accounting discussions. However, the argument was focused on organizational scope, structure, and political attributes rather than the role accounting plays in the development and presentation of information to decision makers striving to sustain operating activities. In a summary of system theory criticisms, Dubrovsky (2004) points out that ST is unable to establish principals applicable to all systems and cannot be studied from a holistic viewpoint, rather, components must be investigated. Finally, systems being intangible confound researchers for they nd it difcult to discern cause and effect, and, subsystem relationships in changing environments. 2.5. Organizations as systems Barnard (1938) considers organizations to be systems consisting of a number of interrelated subsystems that pursue a shared mission and strategic plan. As can be seen in Fig. 1, organizational systems are composed of four distinct functions critical to organization sustainability. Inputs consist of resources, such as people, material, equipment, money, and information, used to construct and develop system operations. The transformation process is the heart of an organization. Here, value is added by converting inputs into a product or service useful to society. Outputs represent the consumption of goods and services. Finally, from outside and inside a system, monitoring mechanisms obtain information critical to understanding how it is performing in terms of efciency of operations and effectiveness of social interaction. Often the ST discourse does not acknowledge that each system affects their environment as they transform, which in turn causes the environment to change, which may then require a system to consider additional adaptive choices (Morgan & Smircich, 1980). This interdependency of system and environment is a key component of chaos theory (Gleik, 1987), within which the idea of sensitive dependence on initial conditions is commonly illustrated through the metaphor of the buttery effect. Morgan and Smircich (1980) encourage research that incorporates an understanding of organizational and environmental cause and effect as a two way street. Supporting Barnards concept, Miller (1972), advanced living system theory as a renement of its general Systems Theory counterpart. He proposed that: [a]ny organization, no matter what its function in the society, must maintain itself as a system. It must perform its specialized activities, such as production and output of a given

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Fig. 1. Organizational transformation process with the ST framework.

sort of matter-energy or information product or service. And it must coordinate its activities with other components of the suprasystem [organization] (p. 8). Miller (1972) further points out that most organizational research is conducted at the subsystem level where it is easier to measure and test data. Jackson (2003) highlights subsystem and subsystem relationships as keys to the successful conduct of the transformation process. For example, in a biological setting, a human is composed of subsystems (digestive, autonomic nervous, circulatory) all of which must work in unison for a human to grow and survive. Likewise, Jackson (2000) explains that an organizational system is composed of subsystems (managerial, procurement, production, marketing, accounting) which must be coordinated through planning, organizational structure, and applied leadership. While there is no single best way to go about this process, information ows that support communication and learning across organizational subsystems are key to sustainability. Ulrich (1983) suggests that, in social systems (organizations), social groups (subsystems) must be coordinated in a way that results in purposeful action as each subsystem contributes to the transformation process. At the same time, subsystems must adapt to both internal and external environmental agitation. Duncan (1972) adds that a system must be able to repair itself in a way that maintains operational order through the employment of a decider subsystem that monitors and coordinates the activities of each system component. In organizations, the decider subsystem is executive management, and this group accomplishes its system sustaining function through the development of purposeful goals and values. Within an organization, the accounting

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subsystem supplies decision-useful information to the decider subsystem. In addition, accounting information provides an important source of institutional memory useful to system members responsible for planning and control (Cooper, Hayes, & Wolf, 1981). Since humans are open systems (i.e., they interact with the environment), organizations composed of humans are open, and, therefore, must overcome the tendency of systems to disintegrate over time. To arrest entropy, an organization must adapt to changes in its environment; however, as Ackoff (1970) points out, most organizations are change resistant. The willingness to change requires learning based on information garnered from both internal and external environments (Barnard, 1938; Gharajedaghi & Ackoff, 1984; Miller, 1972; von Bertalanffy, 1969), and as Boland (1986, 2001) points out, designing information ows to meet subsystem user needs is an important system sustaining function. Accounting plays a role in the provision of system critical information. Financial accounting provides information useful to those who supply certain inputs, bankers, investors, suppliers, whereas managerial accounting provides information useful to managers when selecting materials and equipment for operational needs. In addition, accounting information provides feedback to those responsible for improving the efciency of the transformation process. Thus, accounting information is critical to the ability of a system to continuously repair and re-energize itself (Mason & Swanson, 1979). Indeed, Cooper et al. (1981) conclude that accounting subsystems produce information that provides cohesiveness between accounting and other system units thereby promoting operational sustainability. Further, Napier (2006) found that, [a]ccounting has changed, is changing, and is likely to change in the future (p. 1). Napiers insight was gleaned from a review of articles appearing in Accounting, Organizations and Society for the period 19792005, and his conclusion is consistent with ST; as systems adapt to environmental pressures, the accounting subsystem must also adapt to meet overall system needs. Most accounting research focuses on how accounting information impacts on organizational subsystems. As Morgan and Smircich (1980) point out, much of this research is quantitative and lacks a contextual application. Morgan and Smircich (1980, p. 496) suggest that systemic wisdom lies in an awareness that relationships change in concert and cannot be reduced to a set of determinate laws and propositions, as positivist epistemology would have it. In order to ascertain how accounting research relates to ST, theories explored in doctoral dissertations are analyzed. The research design and methods utilized to develop this aspect of the study are discussed in the next section. 3. Research design and discussion 3.1. Research design To conduct this study, we analyzed accounting dissertations. We selected accounting dissertations because a base theory is normally explicitly stated whereas theories in published journals are seldom stated and require discernment. Second, dissertations are developed under the watchful eye of doctoral faculty who are theory experts and, in this sense dissertations are comparable to referred journal studies. To populate the sample, we searched the UMI dissertation database using accounting and 2001 as search terms. We chose the year at random, from 2000 to 2003, and we identied 50 dissertations. These dissertations were reviewed and 20 were not useable because they used accounting in the title but focused on other disciplines where accounting was used in the title as a synonym for to give an explanation or for reasons, or causes, or motives. The remaining 30 dissertations related to the accounting profession and were included in this study.

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We reviewed the relevant studies to determine the base theory under examination. If a theory was not explicitly set forth, one was attributed based on the material presented in the literature review and hypothesis development. 3.2. Discussion Results of the dissertation review are set forth in Table 1 and show that 24 of the dissertations indicated the theory studied, whereas 6 did not. Of those that did not clearly set forth a theory it was possible to deduce a theory in ve cases. Only one study was not classiable as to theory, as the stated purpose of the dissertation was to identify a set of spreadsheet competencies needed in entry level accounting positions and was data gathering and reporting in nature rather than hypothesis testing based on a theoretical model. In addition, 11 dissertations investigated more than 1 theory with 9 associated with a traditional dissertation format and 2 that investigated 2 separate thesis topics. In terms of academic discipline, Table 2 shows that a base theory was drawn from the nance or economics disciplines in 16 cases compared to 8 from psychology and 3 from sociology. In only two studies was the theory under consideration directly related to the accounting discipline, and the Cho study was not singularly focused as it also investigated the nance-based efcient market hypothesis. While positivist accounting theory is listed as directly related to the accounting discipline the basic tenets of this theory are drawn from economics. In the classication process, when more than one base theory was indicated, the study was categorized by discipline based on the prominent theory examined in a study. This only made a difference in one study that investigated both positivist accounting theory and the efcient market hypothesis. The following subsections summarize the nature of the research conducted considering the specic theory under examination. 3.2.1. Economics and nance 3.2.1.1. Efcient market hypothesis (EMH). Seven dissertations examined Famas (1970) efcient market hypothesis which posits that capital markets exist to provide as a way to allocate scarce nancial resources (AAA, 1977; Fama, 1970). In a study of how this process works in the United States, Fama (1970, p. 383) concluded that [a] market in which prices always fully reect available information is called efcient, and therefore, it is not possible to generate abnormal returns in the marketplace simply by making use of available information. Within an efcient market, Fama (1970, p. 383) established three types of market efciency, which he called the weak form (historical information), the semi-strong form (recently released information), and the strong form (monopolistic or insider information). Information is the centerpiece of the efcient market hypothesis (Fama, 1970) and for a market to be efcient, market participants must have access to relevant and reliable information, which when received, will result in a prompt transition to a new equilibrium [price] (AAA, 1977, p. 19). For information to be relevant and reliable in terms of decision usefulness, it must be accurate, understandable, and timely. In fact, the importance of relevant and reliable information received considerable attention in the literature (AAA, 1977; AICPA, 1970, 1973) immediately following the introduction of Famas (1970) efcient market hypothesis. This concept, investigated by Ball and Brown (1968) who initiated a stream of research on the value relevance of earnings when they suggested that accounting earnings are important to investment decisions, in turn highlights a need for uniform accounting practices across both industry and national borders.

W. Hahn / Accounting Forum 31 (2007) 305322 Table 1 Theories examined in doctoral dissertations Author 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
a

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Institution New York U Utah State U U of South Dakota SUNY at Buffalo U of Calgary Colorado State U City U of NY Nova Southeastern Southern Methodist Kansas State U Indiana U Temple U New York U U of Chicago Rutgers U U of Calgary U of Oklahoma Florida Atlantic U Kent State U Virginia Polytechnic U of Pittsburg Texas A&M Virginia Commonwealth U of Minnesota Wisconsin-Madison Missouri-Columbia Nova Southeastern South Carolina Illinois-Urbana Queens U

Theory explored Learning theory and attribution theory No clear theory set forth Cognitive theory Positive accounting theory Efcient market hypothesis Social process theory Cognitive theory Expectancy theory Efcient market hypothesis and agency theory Organizational commitment Job involvement theory Positive accounting theory Human capital theory Valuation theory (DCF&RI) CAPM and arbitrage pricing theory Efcient market hypothesis Efcient market hypothesis Efcient market hypothesis Critical theory (sociology) Valuation model (RI&DCF) Agency theory Efcient market hypothesis Cognitive moral development theory Social categorization theory Social psychological theory Learning theory Culture theory Valuation theory (DCF) Contingent claims theory Efcient market hypothesis Economic consequences Valuation theory Agency theory Belief updating theory Attribution theory Adaptor-innovator theory Valuation theory Valuation theory

Implied or stated Stated N/A Stated Stated Stated Implied Stated Stated Stated Stated Stated Stated Stated Stated Implied Stated Implied Stated Stated Stated Implied Stated Stated Stated Stated Stated Stated Stated Implied Stated Stated Implied Stated Stated Stated Stated Stated

Basile Bush Chen Cho Everett Froman A.Y. Huang S.Y. Huang Hunt Jackson Jansen Kim Kozberga Kraft Li Manassian Mason Mortimer Myring Richmond Rowea Sauceda-Castillo Stoltzfus Venugopalan Weiss Woodland Wright Xu Yaekura Zeng

Two thesis type papers rather than one complete dissertation.

Dissertations employing the EMH investigated international accounting standardization on market values in Taiwan (A.Y. Huang, 2001; S.Y. Huang, 2001); the impact of accounting information on internet rms (Kozberg, 2001); accounting information impact on trading strategies (Kraft, 2001); the impact on value relevance of international accounting standards across jurisdic-

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Table 2 Theories used by academic discipline Discipline Accounting Economics/nance Psychology Sociology No theory Total Number of dissertations 2 16 8 3 1 30

Positive accounting theory was classied as an accounting theory. It is, however, closely related to economics, from which it draws its positive and normative nomenclature.

tional regimes (Li, 2001); the impact of unexpected earnings considering different international accounting standards (Myring, 2001); and the impact of conservative and liberal accounting alternatives (Venugopalan, 2001). 3.2.1.2. Capital asset pricing model (CAPM) and arbitrage pricing theory. The CAPM model is based on the theory advanced by Sharpe (1964) which presumes that greater investment risk will result in higher expected returns from investors. This model uses systematic (market risk) and unsystematic (security specic) risk to assess portfolio risk levels and assumes that only systematic risk is compensated through market activity because unsystematic risk can be diversied away. In addition, arbitrage pricing theory (APT) includes considerations inherent in CAPM. APT assumes a linear return model that uses individual security returns, the deviation of individual security returns from the market, the sensitivity of the individual securitys return to the market deviation, and random factors, which predicts an expected return on an arbitrage portfolio is zero because there is no risk and no investment (Ross, 1976). Kim (2001) used CAPM as a basis for his research on the impact of market, state, and governmental accounting information on municipal bond returns. 3.2.1.3. Valuation models. Six dissertations used valuation models as a basis for research. Jansen (2001), Mason (2001), Weiss (2001), and Zeng (2001) used the Feltham and Ohlson (1995) model which calculates a market value for a rm based on dened book value (net operating plus net nancial assets) plus the present value of expected above normal earnings (abnormal earnings) in order to assess value relevance of accounting information. Among these studies, Jansen (2001) investigated the impact of research and development and property and equipment on residual income. Mason explored accounting conservatisms impact on cash ow and accruals. Weiss examined how re-insurance accounting choices effect value. Zeng investigated the tax planning impact of derivative instruments on rm value, and Yaekura (2001) compares the usefulness of U.S. and Japanese accounting information to develop rm value. In addition, Stoltzfus (2001) used a model based on Merten (1974) and Reiter (1992) to assess the value relevance of joint venture equity versus how bond risk premiums are inuenced by the equity and the consolidation accounting methods. He also employed the BlackScholes options pricing model in this research, whereas Yaekura employed accounting valuation models (Residual Income, Capitalization, and Combination) to investigate whether securities are more appropriately valued using U.S. accounting data or data in other worldwide accounting systems.

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Valuation models normally employ a discounted cash ow (DCF) technique that traces its origins to Williams (1938). This model, based on a time value of money concept, assumes cash today is more valuable than cash in the future, assuming positive interest rates that incorporate a real return and a risk premium. This concept was incorporated into a variety of valuation techniques, ranging from capital budgeting to the Gordon dividend growth model (Gordon, 1959). 3.2.1.4. Human capital theory. Jacksons (2001) theoretical foundation is human capital theory, which is grounded in the work of Adam Smith, and was modernized by Becker (1964). This theory posits that productivity can be enhanced by education and training and that an individual will make rational decisions to maximize lifetime earnings; therefore, a causal relationship exists between education and training and worker productivity. Indeed, this theory posits that workers will invest in training and education up to the point where marginal returns equal marginal costs, and has been a primary driving force in U.S. economic policy since the 1960s. Jackson (2001) employs this theory to investigate the impact of the 150-h requirement on the accounting profession. 3.2.1.5. Agency theory. A.Y. Huang (2001), Mortimer (2001), and Woodland (2001) employed agency theory as a basis for their investigations. Building on a book by Berle and Means (1932), the thesis being that owners of corporations are not in control of them, Jensen and Meckling (1976) started a steam of research exploring how decisions by agents, assumed to be maximizing personal utility to the detriment of owners, impact on the value of a rm. In this work, they advance a theory of ownership structure of the rm. Agency theory centers on the principal/agent relationship and addresses how differing information is used in a contractual relationship to affect an ongoing relationship. Obviously, a principal seeks an agent that will act in the principals best interest. However, an agent may take undetectable action in his/her own self-interest to the detriment of the principal (moral hazard), or an agent may possess information that a principal does not, and a principal cannot be certain that an agent will make the most appropriate decision possible. In other words, agents are inclined to act in a self-interested manner, and there is an ongoing tension between owners and professional managers. Mortimer (2001) investigates the impact of CEO departure on accounting information, and Woodland (2001) investigates the information usefulness of tracking stock disclosures. 3.2.1.6. Economic consequences theory. Weiss (2001) employed economic consequences theory to a second aspect of her study relating to reinsurance accounting as changed by SFAS No. 113. Under this theory, managers are expected to respond to environmental changes by selecting and implementing other available risk management options or by developing and employing alternative risk management tools. 3.2.1.7. Relationship to systems theory. Financial information affects the nancing, investing, and operating areas of organizational systems. EMH, CAPM, and valuation theories are primarily concerned with how markets react to nancial information and how such reaction affects a rms required return and related cost of capital. This, of course, inuences an organizations ability to gather nancial resources at favorable prices. Likewise, to identify assets capable of perpetuating organizational performance and longevity, in valuation models, required returns are an important ingredient in the asset selection process. Thus, nancial information is a system output that affects the environment, which in turn inuences the input gathering process.

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Human capital theory explores how systems value learning which is required for growth and adaptation purposes, whereas the agency and economic consequences theories investigate how managers use information for decision purposes to the advantage of organizational sustainability. 3.2.2. Psychology 3.2.2.1. Learning theory and culture theory. Learning theory is composed of behaviorism, cognitivism, and constructivism. Basile (2001) and Chen (2001) consider two of the theoretical branches, behaviorism and cognitivism, where behaviorism focuses on how learning changes behavior and cognitivism attempts to identify thought processes that lead to a change in behavior. Constructionism assumes that people develop a unique perspective of the world and focuses primarily on problem solving in a dynamic environment. In four studies involving learning theory (Basile, 2001; Chen, 2001; Froman, 2001; Sauceda-Castillo, 2001) the Kolb, Rubin, and McIntyre (1979) learning style inventory, was the centerpiece of a study of an aspect of learning under consideration to American accounting students (Basile, 2001), Taiwanese accounting students (Chen, 2001), rst-course accounting students (Froman, 2001) and students with multi-cultural backgrounds (Sauceda-Castillo, 2001). In addition to learning, Sauceda-Castillos (2001) study included an acculturation component based on culture theory. This theory examines how people from different cultural settings process similar information, and incorporates Hofstedes (1991) four dimensions of cultural difference: (1) large versus small power distance, (2) individualism versus collectivism, (3) masculinity versus femininity, and (4) uncertainty avoidance versus uncertainty acceptance. 3.2.2.2. Expectancy theory. An additional aspect of Fromans (2001) study was expectancy theory developed by Vroom (1964). Vrooms theory of motivation attempts to explain why individuals make choices among behavioral alternatives within the framework in self-interest. Its central premise is that individuals in an organization will pursue different sets of goals and be motivated to put forth a maximum effort on behalf of an organization if they think positive performance attracts rewards, the reward will satisfy a personal need, and they can realize success. 3.2.2.3. Organizational commitment and job involvement theory. S.Y. Huang (2001) used both the organizational commitment model and job involvement theory to examine job stability at public accounting rms. This research employed a model developed by Mowday, Steers, and Porter (1979) which assesses both attitudinal and behavioral aspects of organizational commitment using three criteria: (1) acceptance of an organizations mission, (2) an ability and willingness to work hard to help an organization achieve its goals, and (3) a desire to remain afliated with an organization. Similarly, job involvement theory attempts to identify the psychological aspects of a job that match a workers specic needs. In this portion of the research, Kanungos (1982) 10-question job involvement questionnaire was employed to gather information appropriate for hypothesis testing. 3.2.2.4. Attribution theory. Both Basile (2001) and Xu (2001) used attribution theory as the foundation for their research. Attribution theory, rst advanced by Rotter (1966), posits that human behavior divides into two groups based on a personality trait termed locus of control. Under Rotters schema, locus of control classies individuals based on their view of how outcomes resulting from their actions are associated with either their behavior or an outside agent.

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Using this trait as a separation criterion, individuals are either internals or externals. Internals have a sense of self-determination, feeling that their personal competency set (i.e., skills, education, or experience) is primarily responsible for performance outcomes, whereas externals believe that outside factors, such as fate, luck, or divine intervention, are primary factors driving performance. Basile (2001) performed his study on internet-based instructional technology, whereas Xu (2001) investigated how accounting manager personality affects performance evaluations. 3.2.2.5. Cognitive moral development theory. Richmond (2001) used cognitive moral development theory to explore ethical reasoning among college students. This theory is grounded by Kohlbergs (1969) six stage model, which assumes that at birth humans do not have morals, ethics, or honesty, and that cognitive moral reasoning becomes increasingly complex as individuals mature and gain experience and education. Within this framework, personal values must ground ethical reasoning, must involve issues between self and others, and must consider what is right, rather than personal preferences, in terms of liking or desire. 3.2.2.6. Belief updating theory. Wright (2001) employed belief updating theory to examine how recruiters, professors, and students perceived seven qualities important to success in the accounting profession. According to this theory, developed by Lund (1925), people are persuaded by the sequence in which information is introduced. Specically, earlier information has primacy over information that follows. Thus, the order of presentation will inuence how a user interprets information. 3.2.2.7. Relationship to systems theory. Since organizational systems are a collection of individuals, understanding how motivational stimuli inuenced an employees personality and capability set is important for insuring full support of an organizations goals. Psychology based theories primarily explain how systems react to environmental stimuli, learn, and grow. This is the primary focus of both learning and culture theory. Learning theory explains how individuals process new information and how behavior changes because of a learning event. Likewise, culture theory explains how individuals from different cultures process information in a learning environment. Expectancy theory explains how rewards can enhance individual performance. Similarly, organizational commitment and job involvement theory predict how the work environment inuences employee productivity and longevity, which affects the value-added component of Systems Theory. Attribution theory explains how personality affects the response to environmental stimuli. Cognitive moral development theory provides a basis for assessing the underpinnings of a workforce, which, if not ethically based, can destroy an organization (e.g., Enron, Arthur Anderson). Since all systems are entropic (i.e., tending toward disorder), the use of information to enhance learning is important to an adaptive process that will promote negative entropy, thereby perpetuating existence. As such, theories emanating from psychology represent sub-theories attempting to explain how systems (people and organizations) learn in order to adapt, perform, grow, and survive. 3.2.3. Sociology 3.2.3.1. Critical theory. Manassian (2001) uses critical theory to examine communicative aspects of international accounting literature. This theory evolved from the Institute of Social Research at the University of Frankfort in the 1960s and has an interdisciplinary scope. While this theory is not

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precisely stated, it encourages critical thinking in a way that challenges traditional assumptions and attempts to nd new explanations for existing environmental phenomenon, thereby exposing inaccurate reporting, insincerity, and lack of clarity and representational faithfulness in accounting communications. 3.2.3.2. Social process theory. Everetts (2001) research explores social process theory developed by Harvey (1996), in which the social world is comprised of six basic elements or social moments: power, discourse/language, the imaginary (behavior/values/desires), institutions/rituals, material practices, and social relations (Everett, 2001, p. 76). Everett uses this model to investigate accounting and auditing practices within the Canadian national park system. 3.2.3.3. Social categorization and social psychological theory. Rowe (2001), in two separate studies, rst explores the impact of horizontal versus vertical accounting operating and control systems on cooperation among departmental managers using social categorization theory. In a second study, Rowe examines the ability of managers to predict how vertical versus horizontal interdepartmental cooperation among organizational participants using social psychological theory. Social categorization theory explains why people afliate with groups and how members of different groups interact. Social psychological theory deals with the ability of managers to predict how members of a group think, feel, and behave when they encounter different workplace approaches or managerial operating styles, whether such inuence is actual or imagined. 3.2.3.4. Relationship to systems theory. Theories from the sociology discipline explain how groups interact, adapt, or attempt to change some aspect of their environment. Because open systems must be environment sensing if they are to grow in a way that negates entropy, theories in this area provide insight into this aspect of system conduct. For example, critical theory promotes challenging traditional assumptions in a manner that will avert group thinking in a way that complements an organizational adaptation process. Social categorization and psychological theory explain group afliation and the prediction of cultural response to workplace change which impacts the value added process. Similarly, social process theory explores how systems interact with their environment in meaningful ways in order to adapt and survive. 3.2.4. Accounting Cho (2001) and Hunt (2001) each conduct studies based on positive accounting theory. This theory, drawn from economics, predicts organizational behavior in terms of both individual worker contracts with a rm and the impact of governmental regulation (Watts & Zimmerman, 1986). Positive in economics means the exploration of why things are done as compared to normative which is concerned with what ought to be done. Thus, this theory explains organizational action in terms of the utility maximization of individuals as embodied in corporate decisions. Cho (2001) explored stock market reactions to changes in GAAP related to accounting for income taxes, and Hunt (2001) investigated accounting choices of subsidiary rms in multi-rm organizations. As with theories in economics, psychology, and sociology, positive accounting theory focuses on explaining how systems react to changes in the accounting environment. 4. Conclusions This research represents a seminal effort to identify theories used in accounting dissertations and to relate them to ST. It is found that theories used in accounting research are borrowed from

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nance, economics, psychology, and sociology, and such research attempts to explain why, or how, accounting information is important to a particular aspect of an organizations transformation process. This nding is consistent with a study of management accounting research that concludes that a unied management accounting base theory has not been identied, and that this branch of accounting draws from the economic, psychology, and sociology disciplines for theoretical guidance in the conduct of empirical research (Shields, 1997). The FASBs general framework highlights decision-useful information as the primary objective of the accounting discipline. Likewise, information is a critical component of ST. Specically the requirement that open systems constantly monitor changing internal and external environments in ways that promote effective and efcient value added activity through adaptation that maintains harmony with the operating environment. Further, the idea of sustainability relates to the entropy concept in ST, as information, with accounting being one signicant information source, is important to decision making that negates the tendency of systems to deteriorate over time. Because systems are complex and multi-dimensional, accounting research is not conducted on an entire system. Rather, a subsystem approach is employed because it simplies data gathering and hypothesis testing. The ability to relate subsystem research to other intra-system components would be useful to organizational decision makers since, consistent with system thinking (Duncan, 1972; Miller, 1972), the decider component of a system (senior management) needs to know how subsystem effort contributes to overall system sustainability. However, any attempt at generalizing to the broader system should be contextual, rather than positivism causal, because subsystem interactions are dynamic and ever changing (Morgan & Smircich, 1980). Indeed, ST seems capable of serving as a coalescent for subsystem research if, as suggested by Ulrich (1983), such research is evaluated using a critical approach that allows for consideration of alternative beliefs and assumptions. The literature review indicates that both accounting literature and accounting textbooks are devoid of explicit ST discourse. Thus, accounting educators have an opportunity to identify ST as the source of the transformation process set forth in accounting textbooks, and to utilize this rich paradigm as a way of explaining why accounting is an important mechanism for supplying organizational decision makers with information that is both relevant and reliable. ST also provides accounting educators with a useful way to incorporate an interdisciplinary aspect to classroom learning by highlighting the value of accounting information to other organizational disciplines, such as marketing, management, operations, and nance. Doing so will promote discourse on how accounting information contributes to rm coordination, welfare, and sustainability as called for by Morgan and Willmott (1993). Finally, not all of the 2001 accounting dissertations clearly identify the base theory under investigation. Since a base theory is a critical component of the scientic method, those involved on dissertation committees will improve the quality of a research effort by requiring a clearly written base theory that supports the development of research questions and hypotheses. As is the case with research studies, this research is not without limitations. First, there is much ST literature that we could not incorporate in our paper. The omission of worthy and insightful viewpoints was necessary to keep the paper to a manageable length. Second, we employed accounting dissertations from 2001 to identify theories used in research efforts. Future research might use articles from referred journals for this purpose. Third, this paper focused on accounting research and presented short summaries of theories used as a basis for research. Future efforts might more rigorously explore sub-theories in a way that provides opportunity for both the researcher and the proponents of different theories a voice in the ST debate.

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