A Proposed Framework for Behavioral Accounting Research

A Proposed Framework for BehavioralAccounting Research

Jacob G. BirnbergUniversity of Pittsburgh

ABSTRACT: Behavioral accounting research �BAR� is richer today, in the topics cov-ered, the methods used, and the range of sub-areas of accounting in which it is per-formed, than ever before. This paper offers a framework within which BAR literature canbe viewed as a whole rather than in segments, such as by accounting sub-areas or byresearch method. The framework classifies BAR by the focus of the research: theindividual, group, organization, or the society within which accounting exists. The pur-pose of the framework is to help researchers in BAR to appreciate the insights to theirresearch questions that can be found in BAR using another research method or study-ing a similar issue in another sub-area of accounting. Existing research in each of thesefour areas is discussed to illustrate the usefulness of the framework. In addition, be-havioral research in other disciplines that could impact BAR and areas of potentialfuture research are discussed.

Keywords: behavioral accounting research.

INTRODUCTION

In the 20 or so years since Birnberg and Shields �1989� reviewed behavioral accounting re-search �BAR�, the area of applied behavioral research in general and BAR in particular hasburgeoned. The BAR literature has grown in breadth, depth, and complexity. This change

reflects an important trend in BAR: the reference disciplines and the object of accounting andnonaccounting behavioral researchers have broadened.

The behavioral decision-making and cognitive psychology literatures that stimulated a sig-nificant portion of the emerging BAR research up to the late 1980s continue to have a significantinfluence on BAR �e.g., Camerer 2001�. In addition, the role of behavioral research has grown inother social science disciplines. Experimental economics has moved into the mainstream �e.g.,McCaffery and Slemrod 2006�. This literature has had an impact on BAR �Moser 1998; Callahanet al. 2006�. Legal researchers, heavily influenced by the writings of Kahneman and Tversky �e.g.,Kahneman and Tversky 1979�, have begun to actively pursue behavioral issues �see Sunstein2000�. A strong behavioral school even has developed within finance �e.g., Thaler 1993; Barberisand Thaler 2003�. Medical researchers have joined with behavioral researchers to investigate

The author thanks the two reviewers for their insightful comments, the editor for the paper, Bryan Church, not only for allhis help, but also for his patience, and numerous colleagues for their help along the way.

A dagger �†� at the end of select references indicates a review of the literature or a paper that includes an extensive set ofreferences.

BEHAVIORAL RESEARCH IN ACCOUNTING American Accounting AssociationVol. 23, No. 1 DOI: 10.2308/bria.2011.23.1.12011pp. 1–43

Published Online: February 2011

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issues such as how individuals react to prospective changes in the state of their health �Udel et al.2005�. Even philosophy has developed a set of experimental researchers �Knobe 2003; Appiah2007� and a journal. Emerging methods for researching old questions are altering the form ofbehavioral research, such as neuroeconomics �Knudsen et al. 2007�. These new tools permitresearchers to go beyond the observed behaviors of the decision makers and penetrate the “blackbox”: that is, observe the brain’s activity during decision making. Finally, these new behavioralresearchers include economic modelers who have developed richer models of economic decisionmakers �“economic man”� intended to explain behaviors such as cooperation �e.g., Rabin 1993,1998�, and empiricists who have utilized aggregated data to test these models �e.g., La Porta et al.1997; Ittner 2007�.

The burgeoning of BAR and the expansion of disciplines that in one form or another haveadded “behavioral” as an adjective to one of their sub-disciplines has enriched the extant researchon which BAR can draw �e.g., Dickhaut et al. 2003; Hannan 2005�. However, the increasedinterest and diversity of methods used to research behavioral issues also leads to a blurring of thedefinition of “behavioral research” in general and the boundaries of BAR in particular. What wasrelatively clear 20 years ago is less clear today. The proliferation of research methods has meantthat BAR is more than laboratory experiments, surveys, and the occasional field study. A varietyof archival databases have been used to investigate essentially behavioral issues �Banker et al.2000b; Ittner 2007�. Even efficient markets researchers, who would not be considered part of theBAR community, are identifying and researching issues that clearly are intended to understandindividual investors’ behaviors: most notably, anomalous behavior relative to the predictions of theefficient market �Sloan 1996�.

This blurring of boundaries between research thrusts has led to an often unrecognized degreeof commonality across BAR thrusts. While this has obvious potential benefits that will be dis-cussed latter, it means the boundaries used in this paper necessarily are arbitrary and subjective. Ingeneral, the questions studied and the papers cited will be related to the actual behavior of people,whether it is as individuals or collectivities of varying degrees of size or complexity �e.g., groupsor organizations�, as they interact with each other and/or their environment. The test used in thispaper is analogous to one offered as an operational definition of obscenity: We know BAR whenwe see it. At the margin different people will draw the line in different places. However, there islittle disagreement in the core of the research.

Given the growth in BAR, any attempt to provide a detailed review of BAR in general wouldlead to a paper far beyond one this author could be expected to competently produce. Moreover,recently a significant number of specialized reviews have been published offering the potentiallyinterested reader a wide variety of in-depth studies of BAR by both research topic �e.g., auditing,management accounting� and research method �e.g., laboratory experiments, field research�. Thesereviews are cited in this paper where appropriate and review papers, or those with particularlyuseful reviews of the literature, are identified in the reference section of this paper.

What would appear to be needed at this point in time is a framework within which the readercan integrate the diverse studies making up BAR. To do this, I will present a framework thatfocuses on the reference group of the studies, highlighting examples of research conducted in eachfocal domain using different research methods and from different accounting sub-fields withinBAR. This approach not only is more parsimonious, but also permits the highlighting of a criticalfacet of any research: complementarities of BAR across accounting sub-fields and methods. Forexample, a paper dealing with audit teams may inform researchers interested in teams in manage-ment accounting, and a field study may provide a laboratory researcher with the insight needed todesign a better experiment.

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Behavioral Research In Accounting Volume 23, Number 1, 2011American Accounting Association

The paper consists of six sections. The first provides an overview of the paper and theframework used. The second through fifth sections discuss each of the broad categories of studiesin the framework. The final section offers a brief summary of the paper.

ORGANIZATION AND SCOPE OF THE REVIEWThe approach used in this paper to categorize BAR is the behavioral unit that is the object of

the research. Does the research study the behavior of an individual, group, etc.? Organizing studiesin this manner highlights the similarities across otherwise diverse studies and is intended tofacilitate intellectual exchange among accounting researchers. To do this, I must necessarily re-strict the depth of the review in any section to accommodate the desired breadth of coverage. Theframework is described in the next section. Like BAR, the boundaries between these categories attimes are subjective. For example, a paper may cover issues appropriate for understanding bothgroups and organizations �Anderson et al. 2002�.

FrameworkI have elected to view the extant BAR by what I have labeled its “focus.” I define focus as the

unit used to analyze the research question�s�. The units range from the study of individuals to thestudy of the environment that acts upon accounting or that accounting helps to shape. The fourcategories used in this review were selected because they define distinct sets of researchquestions.1 The categories include:

• individuals,• small groups,• organizations, and• environmental conditions.Because a study’s classification is determined by the set of individuals it considers in the

research question�s� and/or the analysis, the categories can be viewed as constituting a series ofconcentric circles, with the innermost circles representing the more micro studies. The outer“rings” represent more macro studies reflecting the broader focus of the research question�s�. Theenvironmental conditions category can be interpreted as the “world” within which all other eventsoccur. Two important points should be noted. First, within the categories, particularly the indi-vidual category, there may be sub-categories. Second, studies from one category may informstudies in another, likely adjacent category.

Definition and Discussion of the CategoriesIndividuals. These studies focus on the characteristics of a single actor and/or that actor’s

response to a particular accounting data set, accounting-related stimulus, or accounting-relatedsetting. It is by far the most active of the BAR categories discussed in this paper and can beviewed as consisting of its own sub-categories. One line of individual research can be character-ized by a concern with how individuals solve problems. I label these “pure choice” studies becausethey focus on how well any actor can solve a problem without consideration being given to thebehavior of other actor�s�. Recently, many of these studies have investigated the manner in whichthe economic model �“economic man”� in some significant way does not fit the behavior weobserve.

The second line of research explicitly considers the role of strategic behavior in the actor’s

1 This organization is similar to Hopwood’s �1976, 5� Figure 1.1 describing the social context of accounting. He had fourcategories: individual needs, group pressures and control, organizational structures and control strategies, and the socialeconomic environment. The organization used here differs from Hopwood’s by recognizing differences within the grouppressures and control categories between individuals and groups. This reflects changes in BAR over the decades.

A Proposed Framework for Behavioral Accounting Research 3


decision. In these studies the actor explicitly �should� consider the behavior of a second actor whoactually is present in the setting. These studies would include negotiation �e.g., Fisher et al. 2000�or “cheap talk” �e.g., Zhang 2008�. I label these “strategic studies.”

Groups. Research classified as covering groups includes those studies where the relevant unitof analysis consists of a small number of individuals. Typically, the members will be viewed bythe organization as affiliated �i.e., as acting in concert in some significant way�. Thus, whatdifferentiates group research from research studying participants individually or strategically in-teracting in dyads is the affiliation of the members. The actors are assumed to be in the same unitat the time of the study. This would exclude studies such as those where the individuals are locatedin different levels in a hierarchy. It is distinguished from research on organizations on two dimen-sions. One is pragmatic. Groups are small enough to permit the researcher to study the interactionamong the multiple participants. As the size of the group increases, researchers find it moredifficult to create and/or analyze the interactions �process� and the focus of the research shifts fromthe members of the group/organization to the organization itself. The other distinction is the focusof the research. While group research is concerned with the activities of the group’s members,organization research is concerned with the role of policy or the effect of characteristics of theorganization or its environment on the organization’s accounting policy or the organization as awhole. This reflects a higher level of aggregation where the behavior of the individuals is lost. Forpractical purposes the upper limit of group research usually is relatively small, typically four.

Organizations. As noted above, the focus of this research is on the characteristics of the unit.The entity studied may be described by the legal boundaries of a firm or a division within a largerentity. The research question often is the role played by structural characteristics such as taskcomplexity or the organization’s accounting system design. These studies move us farther awayfrom the characteristics of the individual discussed in the two previous categories. It identifies theindividuals/groups that compose the organization by the roles they occupy rather than by focusingon the characteristics/actions of the individuals who occupy them.

Environmental conditions. These studies examine the role of accounting in society. Studiesincluded in this category reflect the interaction between accounting and society: that is, the broaderworld of which accounting is a part. The interaction can take the form of the external forces thatshape accounting, as well as studies of the role accounting has played in shaping the world inwhich we live. The former may be closely related to BAR studies in organizations. For example,Prime Minister Margaret Thatcher’s intention to privatize British Rail affected the relative roles ofaccounting and engineering within the organization �Dent 1991�, or the potential impact of thewhistleblower provisions of Sarbanes-Oxley �Hunton and Rose 2010; DeZoort et al. 2008�. Howthe institution of standards for outputs led to the establishing of standard sizes for clothing �Jeacle2003a� is an example of how developments in accounting �standard costs� can lead to changes inthe environment �standard sizes�.

INDIVIDUALSThe earliest BAR studies across all accounting areas were of this type and it continues to be

the dominant form of BAR. Shields �2007� reported that 90 percent of the papers published inBRIA from 2004 to 2007 studied the behavior of the individual. As noted earlier, studies of theindividual are of two types: individual choice studies and strategic studies. While the two share acommon core of issues such as the selection of participants and the research methods utilized, theyare significantly different in many other ways. Thus, this section of the paper is organized in aslightly different manner than those discussing the other elements of the framework. The firstsub-section discusses issues common to both. The second sub-section discusses elements specificto individual choice studies, and the third sub-section does the same for strategic choice studies.

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Common Issues

The two types of individual choice studies share many common features. These include theresearch method selected and the choice of participants. Each of these is discussed below. Thesection also discusses differences between the traditional economic model of self-interested be-havior and recent findings in the areas of interpersonal utility, trust, and cooperation found in thisresearch.

Research Methods

The individual choice studies consist predominately of experiments, though some utilizesurveys �Shields 2007�. Experiments are particularly appropriate when the relevant dimensions ofthe decision environment in which the decision maker interacts with the stimulus and makes thedecision are well known. Experiments have been used in BAR to examine a wide variety ofquestions, including internal policies, external policies, tax reporting policies, incentive systems,various types of resource allocation decisions, ethical issues, and various types of reports. Theresponses measured have varied from objective outcomes such as investment decisions �Libby andTan 1999� to more subjective perceptions such as fairness �Evans et al. 2005� or trust �Coletti etal. 2005�. Overall, studies of this type are the predominant form of research in BAR, particularlyNorth American BAR, and can be found across a wide variety of topics, accounting sub-areas, andsettings.

Individual choice studies also utilize surveys �e.g., Chalos and Poon 2000; Clinton andHunton 2001� and archival data �e.g., Banker et al. 2000a�. Archival studies often reflect a natu-rally occurring experiment that permits the researcher to study behavior before and after thechange �“stimulus”� has taken place.

Participants

A significant shift has taken place in the nature of the participants used in experimentalstudies. Participants in the early studies most often were students �undergraduate business majorsand/or M.B.A. students�. BAR studies of the individual over the past two decades, however, haverequired and utilized professionals as participants to a far greater degree. This is a significantdifference from the disciplines from which BAR draws its theories �e.g., psychology�, where thegeneric participant remains the norm. This reflects the differences in the two groups’ referencepopulations for external validity. The use of professionals as participants became necessary whenBAR shifted from its initial focus of “how participants respond while playing a particular role” to“whether the skills accumulated by professionals insulate them from the negative effects of heu-ristics and biases when performing complex tasks” �e.g., Libby and Trotman 1993; Kennedy1993�. Students cannot simulate that accumulated experience or professional knowledge, nor cana mundane experimental task provide insight into the professional’s work.

The use of professional participants in BAR implicitly assumes that the professional’s behav-ior in an experimental setting accurately reflects their behavior “on the job.” Fehr and Leibbrandt�2008� address this issue. They examine the cooperating behavior of fishermen both in a labora-tory trust experiment and their level of cooperation to avoid over-fishing a given area. They findthat the participants’ behavior in the experimental setting accurately predicted their work behavior.

The broadening of the issues covered by BAR has expanded the type of professional partici-pants required. The revival of interest in financial BAR now requires participants possessingaccounting expertise. BAR investigating proposed changes in the accounting rules requiressophisticated/expert participants to test the validity of the hypotheses and enhance the study’sexternal validity �e.g., Hirst and Hopkins 1998�. This also is true of BAR investigating anomalies



found in archival financial accounting research to generate BAR hypotheses �e.g., Joe 2003�,2 aswell as studies of the behavior of information providers in financial markets, such as securityanalysts �e.g., Libby and Tan 1999�. However, many financial accounting-oriented BAR studiescontinue to utilize M.B.A. students as surrogates for the “naïve investor” �e.g., Tan and Tan 2009�.For a review of these studies and a discussion of the issues, see Libby et al. �2002� and Koonceand Mercer �2005�.

An exception to the use of professionals as participants is found in experiments in manage-ment accounting. What we have learned from use of auditors and investors as participants wouldsuggest that manager participants likely would exhibit many of the same cognitive biases asstudent participants �e.g., Kennedy 1993; Gilad and Kliger 2008�. However, this comparabilitymay not carry over to activities such as budgeting behavior and negotiation. See Vance et al.�2008� for an auditing example.

Some researchers utilizing student participants attempt to compensate for the participants’lack of expertise by measuring participants’ task-specific knowledge �e.g., so many courses inaccounting or years of work experience�. They also use measures of the participants’ generalproblem-solving ability, such as SAT or GMAT scores or responses to selected questions fromtests of that type �e.g., Dearman and Shields 2005�. For a nonaccounting study, see Burks et al.�2008�. These measures typically are used to identify potentially relevant differences among in-experienced participants �i.e., students�. However, Dearman and Shields �2005� use their problem-solving ability measure as an independent variable to explain why some participants exhibitnonfixated behavior while others did.

One topic related to the selection of participants in which BAR has shown less interest thanothers of decision making-oriented research is gender differences. Non-BAR strongly suggeststhat this may be an issue. These studies have reported significant gender-related differences inareas such as risk taking �e.g., Jacobsen et al. 2007; Huang and Kisgen 2008�, competition �e.g.,Gupta et al. 2005�, and negotiation behavior �e.g., Bowles et al. 2007�. All these areas can beimportant in BAR.

Those BAR studies reporting the presence �or absence� of gender-related differences in ob-served behavior have utilized these data in one of two ways. One uses the participant’s gender asan independent variable �e.g., Johnson et al. 1998�. These studies investigate the conditions underwhich the participant’s gender could affect behavior. If gender differences exist, randomizationmay obscure their effect�s�. Other studies check for gender differences to be sure that they do notconfound the experiment’s results �e.g., Booker et al. 2007; Fleischman et al. 2007�. Future BARmay show greater awareness of the issue since SSRN in June 2009 established an ARN for“Demographics, Gender, and Diversity Accounting Abstracts.”

Because of the limited research, it is an open question whether gender is as relevant an issuewhen professional participants are used as it is in other studies. Do their professional training andexperiences override any gender issues? Two studies suggest that the differences may persist. Chinand Chi �2008�, using archival data from Taiwanese audits, found that female auditors are morerisk-averse and more ethical in evaluating clients’ accruals. A survey of U.S., German, Italian, andThai fund managers �Beckmann and Menkhoff 2008� found what they describe as the “expectedgender differences”: female respondents are more risk-averse and exhibit greater aversion tocompetition.

Noneconomic Dimensions Affecting the IndividualIn what could be labeled “post-modern” BAR, a line of research focuses on the appropriate-

ness of two assumptions in the traditional economic model. One is that self-interest is the sole

2 In an interesting twist, Allee et al. �2007� used archival financial accounting data to provide convergent validity for BARhypotheses.

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motivator of choice; the other is the use of monetary outcomes as the sole basis for measuring theutility of an outcome. While it is possible to integrate these arguments into the utility function�e.g., Birnberg and Snodgrass 1988; Luft 1997; Casadesus-Masanell 2004�, BAR tends to viewthese dimensions as if they are constraints on the individual’s wealth-maximizing behavior.

Typically, BAR studies of this type bring together literature from psychology and experimen-tal economics. They stress that rather than behave in a self-interested manner, individuals conformto certain social norms such as fairness, equity, trust, honesty, or a willingness to cooperate. For adiscussion of these issues, see Camerer �2001�, Rabin �1993, 1998�, Fehr and Gaechter �2000�,Fehr and Schmidt �1999�, Moser �1998�, Evans et al. �2001�, Evans et al. �2005�, and Dawes andThaler �1988�. Another dimension related to fairness and equity but not explicitly discussed inBAR is egalitarianism �Dawes et al. 2007�. Overall, these studies are important for BAR for tworeasons. First, they show how little it takes for the participants to exhibit non-self-interestedbehavior. Second, they show the importance of the individual’s perception of equal/fair treatmentrelative to his or her peers and how they respond to a lack of perceived equity/fairness. Trust is ofinterest to behavioral researchers of all types �Rousseau et al. 1998; Sapienza et al. 2007�. In BAR,Rose �2007� examined how management’s financial reporting behavior affected the investors’willingness to trust them. Evans et al. �2001� focus on the individual in a management accountingenvironment and show that individuals will behave honestly in a setting where their dishonestbehavior would not be detected, thereby violating the self-interest assumption. As a possibleexplanation of this type of behavior, Rutledge and Karim �1999� found that those participants whodid not exploit their asymmetric information in a principal-agent setting scored higher on ethicaldevelopment than those who did. Their research and many other papers suggest that non-totallyself-interested behavior is the norm or “default” behavior for many individuals and in manysettings, rather than the self-interested behavior postulated in traditional economic theory. A pos-sible explanation for this behavior is their perception of whether they were treated fairly �e.g.,Greenberg 1990; Hannan 2005�.

These findings can lead to interesting research on the individual’s response to their absence offairness. Remindful of Lucy van Pelt and Charlie Brown’s ongoing “relationship” over his kickingthe football, Bohnet and Zeckhauser �2004� report that decision makers exhibit an aversion tobetrayal and take actions to avoid it. Wang �2007� examines the symmetry between the punish-ment for dishonesty and the reward for honesty. She finds that honesty is rewarded more gener-ously than dishonesty is punished. Issues of this type can be related to resource allocation inmanagerial accounting and client behavior in auditing. In both cases, the research question wouldinvolve identifying which behaviors lead to trust �or distrust� between the parties. What causes anauditor to trust one client more than another? What causes a superior �manager or auditor� to trusta particular subordinate?

Any trust-oriented research raises �at least� two questions related to experimental design. Oneis the importance of the experiment’s context �degree of realism� and the choice of participants�students or professionals� used in the study. The other is the importance of the presence orabsence of the interaction with a real person when the participant is told of the existence ofanother participant. The latter issue is discussed under strategic choice situations.

Culture and Its Impact on Decision MakersBAR studies dealing with social norms and potentially differing values across cultures ask

whether differences in culture result in different decisions/behaviors. For the most part, thesestudies have utilized the framework of Hofstede �1980�. However, it is important to be aware thatsome issues have been raised about the appropriateness of his categories �e.g., Baskerville 2003;McSweeney 2002�. Because of the readily apparent cultural differences, the greatest portion ofthis research has compared Asian and North American workers �e.g., Birnberg and Snodgrass



1988; Chow et al. 1999�. Thus far, the studies are inconclusive. While some of the studies havefound differences consistent with their predictions �e.g., Kachelmeier and Shehata 1997�, othershave not �Birnberg et al. 2008�. In an interesting archival financial accounting study related toBAR, Doupnik �2008� finds inter-country differences in earnings management after allowing fordifferences for legal regimes.

The potential role of national cultures is becoming more important as BAR internationalizesand research findings reported by researchers from many different countries appear in journals andSSRN. This raises the following question. Are research findings from one country universallyapplicable or should we be concerned and replicate them before we accept their universality?

As management systems and styles “internationalize” in large, industrialized economies, itmay mitigate concerns over cross-cultural differences. However, this homogeneity may not bepresent in small-scale economies. In contrast to results reported in some BAR, Henrich and theCross Cultural Ultimatum Game Research Group conducted an extensive study across 15 small-scale economies. Their study is important because they examine behavior among economieswhere the variation in economic development is far greater than those typically studied by BAR.Using the dictator game and a social dilemma game, as well as the ultimatum game, they reportthat the “textbook economic model” failed to predict the observed behavior. Their results arereported in various forms �Henrich et al. 2005, 2001�, as well as in Henrich’s �2007� plenaryaddress at the AAA’s 2007 annual meeting. They conclude behavior in the experiments is gener-ally consistent with economic patterns of everyday life in these societies. Henrich et al. �2001,73–74� report that, “The higher the degree of market integration �in their society� and the higherthe payoffs to cooperation �in their society�, the greater the level of cooperation in experimentalgames.”

Summary

While the methods used to study individual behavior have not changed significantly sinceBirnberg and Shields �1989�, BAR has paralleled the trend found in experimental economics. Asignificant portion of BAR now focuses on factors that influence decision makers in directions atodds with the self-interest and wealth-maximizing assumptions. These noneconomic dimensionsinclude trusting behavior, cooperation, and the expectation of a fair share of any rewards. Incertain settings this can lead to greater monetary returns to the decision maker. However, they alsocan expose the decision maker to greater risk. Other characteristics of the “work environment,”such as the national/local culture, also can affect the expectations and behavior of the decisionmaker. It has been suggested that certain of the cultural differences observed in individuals may bebased on different market conditions among countries.

Individual Choice StudiesThere are a variety of reasons for the popularity of individual-focused research in BAR. The

first is simplicity. Considering the individual investor, auditor, etc., in isolation lends simplicity toboth the study’s research model and its design. It also simplifies the analysis and interpretation ofthe results. The second is parsimony. It takes the fewest number of participants to achieve thedesired number of observations per cell. This is especially important when the participants areprofessionals. The third reflects the models generated in the disciplines on which BAR has drawnmost heavily �economics and psychology�. Both contain a significant literature relating to how theindividual makes a decision. Sociology and organization theory consider the “group” to be thesmallest unit and have been drawn on by BAR to a significantly lesser extent.

Individual choice studies in BAR can be divided into two types, depending on the type ofvariable investigated. One group of studies is interested in better understanding the impact of

8 Birnberg


elements of the setting within which the individual acts on the individual. The other is concernedwith the appropriateness of rational wealth-maximizing characterization of the decision maker.

Factors Related to the Task SettingFour elements of the task setting are of particular interest in individual BAR. These are

incentives, participation, accountability, and systems interface. The first two are the focus of asignificant portion of BAR; the latter two, much less.

Incentives. Chow �1983� initiated experimental research on the role of incentives in BAR.This line of BAR literature typically uses the principal-agent model to generate hypotheses. For asurvey of the economic models of incentives, see Prendergast �1999�. In general, the studies reportthat incentives matter and the nature of the incentive system impacts an agent’s behavior �e.g.,Bonner et al. 2000; Towry 2003; Sprinkle et al. 2008�.

Participation. Participation is, essentially, concerned with the honesty of communicationwithin the organizational hierarchy. Early BAR investigated how accurately the workers/agentswould communicate their private information. Would they use it to create slack? Generally, theanswer was yes �e.g., Young 1985; Shields and Shields 1988�.3 However, as discussed subse-quently, later research recognized the strategic nature of the interaction between the subordinateand the superior and modeled participation as a negotiation process.

Accountability. Given the function of accounting, it is surprising that the formal develop-ment of accountability was in psychology �see Lerner et al. 1998 for a review� despite the obviouslink to management accounting research; that is, the effect of evaluation on individual behavior�e.g., Argyris 1952; Prakash and Rappaport 1977�. The notion of evaluation in BAR is not limitedto management accounting. When the superior in an audit team examines the work of a subordi-nate or a client examines the work of a tax professional, an “evaluation” is taking place. Thedifference between the evaluation literature and BAR on accountability is reflected in the breadthof the questions they ask. The evaluation literature focuses on how the accounting system �e.g., theperformance indicator� affects the extent and direction of the effort provided by the “workers”�Prakash and Rappaport 1977�. Accountability BAR not only asks for what the worker feelsaccountable, but also asks to whom the “worker” feels accountable when facing conflicting de-mands �e.g., Johnson and Kaplan 1991; Messier and Quilliam 1992�, or how elements present inthe accountability setting �e.g., a need to justify one’s actions� affect the worker’s behavior �Ah-rens 1996�.

Miller et al. �2006� recognized that there is an element of mutual accountability in the evalu-ation process. The superior likely has a prior relationship with the subordinate and in manyinstances must “justify” any evaluation he/she makes. Their study focuses on the reviewer in anaudit setting. While the study only examines one party to the dyad, their findings suggest thatfactors such as familiarity between the two parties can affect the reviewer’s assessment. Theremay be limitations on the ability to perform these experiments with professional participants indyads because of the potential impact on the participants’ post-experimental relations.

Systems interface. Information systems in BAR essentially are viewed as decision aids. Theyare discussed under various labels, such as decision support systems �DSS� and knowledge basedsystems �KBS�. The DSS typically is used in the management information systems literature todescribe an information system intended to support a specific decision and is closest to the termdecision aid �DA�, which typically is used in auditing to describe what may or may not be acomputerized calculating system. In contrast, the KBS refers to a database collected for a specific

3 Those familiar with the dictator game discussed below will recognize that Young’s �1985� task is essentially the use ofa dictator game to simulate participation.



area of inquiry �e.g., XBRL�.The simpler of the two is the DSS. Two broad questions are researched under DSS. How well

are the systems utilized by those for whom they are intended? And, what characteristics of theDSS facilitate or inhibit their utilization? Specific issues researched under the former include notonly whether the DSS improves decisions, but whether the potential users utilize them andwhether the system can be used to facilitate learning. They differ from the individual choice BARstudies discussed earlier �i.e., that examined how the individual responds to specific outputs of thesystem�. Those studies typically are linked to cognitive issues and the use of accounting data �e.g.,Lipe and Salterio 2000; Dearman and Shields 2005�. The papers discussed in this section areconcerned with the utilization of a DSS as a DA designed to assist an individual perform a specifictask. In general, they report that the DSS is not always utilized �e.g., Whitecotton 1996; Eining etal. 1997�.

Whitecotton �1996� found that auditors’ reliance on the DA was inversely related to theirconfidence in their own judgment. Obviously, this raises two questions. Is the auditor’s confidenceappropriate? And, how do those using the DA perform relative to the best auditors? Rose andWolfe �2000� shed some light on the second question. Using student participants and a tax calcu-lation task, they report participants who performed the calculation using “pencil and paper” ratherthan the DA outperformed the best DA-assisted group by 22 percent, but required 112 percentmore effort �Rose and Wolfe 2000, 297; also see Glover et al. 1997; Borthick et al. 2006�. It isimportant to learn whether the results can be replicated with professionals because it is likely thattheir judgment is superior to that of the students.

Arnold et al. �2006� studied the type of data from the KBS used by �relative� novices �senior/staff auditors� and �relative� experts �partner/manager�. The two groups differed on several dimen-sions. Novices chose feedforward explanations, while the experts chose feedback. Arnold et al.�2006� report that the greater the experts’ reliance on feedback explanations from the KBS, thegreater their adherence to the KBS’ recommendation.

There also are interactive systems intended to facilitate access to larger databases. These DSSare intended to improve the quality of decision making or assist in training. The issues consideredrevolve around the usefulness of the database. In BAR, the issue typically can be framed in termsof the behavioral characteristics of the user and the usefulness to the user of the DSS. The XBRLis an example of such a system. It is intended to enhance the user’s ability to obtain and under-stand financial data about the firm. Hodge et al. �2004� found that nonprofessional users offinancial statements were better able to ascertain the impact of differing reporting methods forstock options between firms using the XBRL than without it. However, like Rose and Wolfe�2000�, they reported that many of their participants did not utilize XBRL. Other BAR has as itspurpose examining the use of DSS as a tool for training/educating novices.

Alternative modes of communicating information, such as graphs, frequently are used inreports. For example, nonnumerical formats are regularly used in corporations’ annual reports,internal reports, and our research. This issue initially was asked by MIS researchers in the 1970s�Dickson et al. 1977� and subsequently extended �e.g., Vessey 1994�. Despite the extensive use ofpie charts and graphs in internal and external reports, there is little research in BAR on this topic�for an exception, see Amer 2005�. In marketing, MacKay and Villarreal �2007� found that therecipient’s ability to take advantage of the simpler nature of nonnumerical data is likely to varyamong individuals. An interesting example of earlier research in this area, using faces to commu-nicate financial data, was reported by Moriarity �1979�.

Noneconomic Dimensions Affecting the IndividualThe above dimensions of the task are essentially elements of the task setting in which the

individual makes a decision. They typically are set by the organization or environment within

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which the decision maker is operating. The decision maker also brings certain characteristics suchas trust and fairness to the setting. These characteristics may be �relatively� stable for any decisionmaker �e.g., desire to be treated fairly�, or they may vary with the situation �e.g., the decisionmaker’s mood�. In this section, these characteristics as they relate to individual choice are dis-cussed.

Ethics. Closely related to the study of norms is the study of ethical behavior. The formeroften is researched in the context of what others expect the actor to do, while ethical behaviortypically refers to the actor’s behavior. Noreen �1988� offers a theoretical link between ethics andagency theory. He argues that parties to the contract could be expected to follow social norms.Early BAR on ethics focused on the participants’ moral development �e.g., Ponemon 1990�. Thesestudies are concerned with two issues. How developed is the moral reasoning of particularindividuals/groups? And, how does a given level of ethical development affect participants’ on-the-job behavior? These two questions can easily be adapted for BAR in any of the accountingsub-areas. The broader issue is how significant the ethical issue is in that sub-area. Auditingresearchers have led the way in considering the role of ethics in BAR. For reviews, see Louwerset al. �1997� and Jones et al. �2003�.

Like the cross-culture research described earlier, the ethics-based research has been charac-terized by issues over how to measure the level of ethical development/behavior of the partici-pants. This is not surprising since, like culture, the level of an individual’s ethical development isnot observable �as distinct from actions�. For a discussion of the different approaches, see Cohenet al. �1996�.

In a post-Enron world, BAR in both auditing and management may find the issue of increasedimportance. The problem facing the researcher is likely to be one of access. To minimize thedegree of intrusiveness and obtain responses, this research typically relies on surveys or cases toelicit responses. There also appears to be a reluctance to publish these papers in the mainstreamaccounting journals. A significant number of BAR studies have been published in The Journal ofBusiness Ethics �e.g., Arnold et al. 2007; Emerson et al. 2007�.

Two tax-oriented ethics studies suggest possible studies for management accounting behav-ioral researchers. Fleischman et al. �2007� demonstrate the linkage across the various aspects ofindividual-focused research. The paper examines the evaluation by managers in a case concerningthe ethical behavior of a spouse in the context of a tax setting �innocent spouse rule�. The paperexplores the potential existence of the innocent spouse rule as a norm and the extent to whichresearch in ethics by behavioral scientists can explain it. Similar studies might be conducted inmanagement accounting. They could relate the participant’s response to the firing of an innocentmanager and, for example, the participant’s predicted subsequent job behavior. This behaviorrelates to the issue of perceived fairness discussed earlier. In the area of financial accounting, Rose�2007� related how what could be labeled �un�ethical reporting by management leads to �dis�truston the part of investors.

Cruz et al. �2000� report that tax professionals’ willingness to resist the client’s desire foraggressive tax reporting is positively correlated with professionals’ score on the MultidimensionalEthics Scale. This raises the question of how a subordinate might respond to a superior’s effortsfor a more favorable set of budget estimates. Would a measure of ethical development predict thelikelihood of cooperation? In an experiment in financial reporting, Vance et al. �2008� hypoth-esized and found that the better the superior-subordinate relationship, the less likely the subordi-nate was to resist the superior’s request for aggressive financial reporting.

Two sets of BAR studies have extended early BAR on ethics in interesting ways. Theyexamine the impact of the individual’s environment on the individual’s ethical behavior. Boothand Schulz �2004� examine the impact of the organization’s ethical climate on the individual’sbehavior. In a laboratory study, they find that holding the participant’s level of ethical development



constant, the behavior of the participant moves in the direction of the organization’s ethicalclimate. There is no reason to believe that similar results would not be found in the effect of thepermissiveness of audit firms on auditor behavior.

Spicer et al. �2004� and Bailey and Spicer �2007� linked cross-cultural research and ethics.Earlier studies had reported ethical differences among auditors in different countries �e.g., Patel etal. 2003; Arnold et al. 2007�. Spicer et al. �2004� and Bailey and Spicer �2007� researched theethical norms of a culture on individuals raised in a different culture. In their studies, they studiedU.S. expatriates in Russia involved in the Russian business community. They report convergencein ethical attitudes and intended behaviors between U.S. expatriate and Russian respondents totheir ethics survey. The U.S. expatriates in their study responded more like their Russian counter-parts than U.S. nationals in the U.S. The respondents also expressed similar attitudes towardorganizational practices that violated the ethical standards or “hyper-norms.” The U.S. expatriaterespondents who were highly integrated into the Russian community expressed ethical attitudessimilar to those of Russian respondents under conditions of “local �Russian� norms.” In both cases,the ethical attitudes of Russians and Americans converge despite the differences that might havebeen expected to arise due to their respective national identities.

Mood. Recently, psychologists, experimental economists, and accountants have begun toexamine the role of the decision maker’s emotional state �affect� on the decision process. Thesestudies could be important if different mood states affect the decision maker’s perceptions anddecisions. While mood could affect strategic interactions, the research undertaken in BAR thus farhas focused on the individual decision maker.

The rationale underlying studies of this type is that mood affects the nature of the priorexperiences retrieved from memory. Positive mood states lead to retrieving positive outcomes incomparable situations and vice versa. Wright and Bower �1992�, in a BAR-related study, reportedthe effect of decision makers’ emotional state �happy, neutral, or sad� on their perception of thedegree of riskiness of a decision and probability of success. As they conjectured, the subjectiveprobability estimate is influenced by the decision maker’s mood. “Happy” decision makers givehigher probabilities for the outcome of positive events and lower probabilities for the outcome ofnegative events. They report the opposite results for “sad” decision makers.

In an accounting context, Moreno et al. �2002� and Kida et al. �2001� report similar results.Consistent with these results, Chung et al. �2007� studied auditors making inventory valuationdecisions and find that mood state affects the degree of conservatism in the auditor’s inventoryvaluation. Auditors in a positive mood are less conservative than those in a negative mood.Moreno and Bhattacharjee �2008�, in a single-party study �the other party did not actually exist�,report that knowledge of the other party’s emotional state affects bargaining behavior. For adiscussion of the literature arguing that emotion can enhance the individual’s ability to makerational choices, see Ackert et al. �2003�.

Psychologists and experimental economists have studied other emotional states that could beof interest to accountants. Lerner and Keltner �2000, 2001� report that fearful participants makemore pessimistic estimates and more risk-averse choices, while anger leads participants to makemore optimistic risk estimates and risk-seeking choices. Interestingly, the responses of angryparticipants more closely resembled those of happy participants than those of fearful participants.For reviews, see Lerner et al. �2004� and Pham �2007�.

An interesting issue raised by these studies is whether the effect of these emotions is to makepeople overly optimistic/pessimistic. We cannot conclude one way or the other without havingsome baseline measure of the probability. What should the individuals believe the probability tobe? Since the participants disagree, we can assume that their emotional state has led at least oneof the groups to be incorrect, but that does not preclude the possibility that they both may be inerror. Ideally, further research will be undertaken in this area where there is a known “correct”

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answer. A topic that conceivably could be related to the issue of optimism/pessimism is the effectof regret in decision making. It has been shown to have an impact in many nonbusiness decisionsettings �e.g., Gilbert et al. 2004�.

A paper by Libby et al. �2008� suggests that optimism/pessimism is not always the “irrational”result of the decision maker’s emotional state. They report that in some circumstances optimism/pessimism may be the result of the incentives. If analysts desire good relations with management,they report that, all else being held constant, the optimism/pessimism of sell-side analysts is adeliberate act and not based on an emotion or trait.

Two recent studies suggest the possibility of yet another emotion that could be affectingworker behavior—guilt/guilt aversion. These studies also illustrate how labels potentially canserve to separate like ideas. Schnedler and Vadovic �2007� hypothesize and find that guilt aversionmotivated participants to exert effort beyond the minimum required by the control system. Onemight conjecture that this merely renames the concept embodied in “gift exchange” �e.g., Hannan2005�. Staffiero �2006� used guilt to describe the behavior of individual members of Japanesework groups. The workers felt guilt when they made insufficient contributions to their work group.In contrast, Birnberg and Snodgrass �1988� offer a more positive explanation of this behavior,suggesting that the outcomes to other members of the group may have a positive utility to anindividual member. Failure to achieve the group’s goal results in lowered utility because of theloss to others as well as to oneself.

Fairness. While the perception of fairness has primarily been researched in strategic settings,the perceived fairness of the accounting system affects the behavior of the individual in individualchoice settings as well. Libby �2001� and Hufnagel and Birnberg �1994� found that the participantswere sensitive to the perceived unfairness of the accounting system �procedural fairness� evenwhen they were not adversely affected by the rule or system.

Physiological Measures and BARBehavioral accounting researchers have tried a variety of methods to understand decision

processes. The methods utilized are relatively non-intrusive, but provide greater insight thanobserving an outcome/response in an experimental setting. These approaches include think-aloudprotocols �e.g., Bedard and Biggs 1991� and data boards �e.g., Shields 1980�. These approachesyielded insights into “cognitive flow” or the decision process being followed. However, both ofthese methods directly involve the participant and are limited to reporting the decision maker’sconscious behavior. The methods discussed in this section measure the same behaviors discussedearlier, but use methods intended to measure physiological changes.

Hunton and McEwen �1997� utilized an eye movement retinal imaging computer to study theinformation search strategy of financial analysts. Unlike protocol analysis that relies on self-reporting and data boards that report only choices, they were able to track the search strategies ofthe analysts in a less obtrusive but more detailed manner. They were able to observe data scannedbut not reported �protocols� or chosen �data boards� by the participants. Consistent with data boardresearch, they found that the more accurate analysts used a directed rather than a sequential searchstrategy. Their search appeared to be motivated by hypotheses generated by the process.4

In finance, Lo and Repin �2002� used more traditional methods �electro-dermal and pulse ratemeasures� to measure the emotional state �level of excitement� of ten stock traders while they wereactually trading. Lo and Repin �2002� found significant differences between periods when signifi-cant market events were and were not taking place. They argue this suggests that emotion is a

4 For a discussion of the use of eye movements in marketing research where they have been used more often, see Zaltman�1997�.



relevant component of the traders’ decisions. Their data suggest that the response varies withexperience, but the sample is too small to draw any statistically significant conclusions.

Neuroeconomics and NeuroaccountingRecently researchers studying decision making have taken a new approach. Working with

neuroscientists, they have gone one step deeper inside the “black box” that is the decision maker.Using various devices, they observe the patterns of brain activation as individuals make choices�e.g., McCabe et al. 2001; Camerer et al. 2005; Knudsen et al. 2007�. Given the neuroscientists’knowledge of the function of the brain centers, conclusions can be drawn about what underlies theobserved behavior. By moving one step closer to the decision maker’s cognitive activity, the roleof the stimulus and the response changes in an interesting way. The decision, typically consideredthe response in BAR studies, now is the stimulus and the brain center activation is the response.This is in contrast to traditional research in BAR where researchers observed behavior and inferredthe underlying cognitive processes or extracted them from protocols.

Thus far, little research of this type has been undertaken by behavioral accounting researchersexcept for John Dickhaut �e.g., Dickhaut et al. 2003; Smith and Dickhaut 2005; Rustichini et al.2005; Dickhaut 2009�. Dickhaut and his colleagues have papers �Dickhaut 2009; Dickhaut et al.2009a, 2009b� using neuroscience to study the evolution of recordkeeping �i.e., accounting�.However, none of these papers provide the type of systematic review of the possible link betweenneuroscience and BAR that can be found for finance in Sapra and Zak �2008�, who offer neuro-science explanations for observed behaviors in financial decision making where data from neuro-science and neuroeconomics are available.

While potentially quite insightful, there are at least three reasons why research of this typewill progress more slowly than other types of BAR. First, it requires cooperation with a researcherpossessing access to machines to perform the scans and skilled in reading brain scans. Second, itwould appear that research of this type is quite expensive. Third, explaining the findings to otherBAR researchers may be difficult. Moreover, the results may not eliminate the issue of “hard-wired” versus “learned” behavior as the explanation for the response.

An example of neuroeconomic research’s potential relevance to BAR can be illustrated usingthe findings of Luft �1994� and Hannan et al. �2005�. Luft �1994� found that participants in herstudy preferred a bonus to a penalty pay scheme even though the payoffs from the two systemswere equivalent. Hannan et al. �2005� found that the participants in the penalty condition exertedmore effort. Given that neuroscientists have shown that different brain centers are used to measurepleasure �reward� and pain �penalty� �Delgado et al. 2000�, this raises the question of whether thepreference for a bonus scheme reflects differences between the pleasure and pain brain centers�“hardwired” neuroscience explanation� or whether it is the approval implied by the “reward” anddisapproval associated with a “penalty” �a social psychology issue of intrinsic reward�. Barnea etal. �2009�, using Swedish data on twins to study investing behavior, suggest that there is both agenetic and a learned component.

A series of neuroscience studies may provide some insight into what is happening. Using theultimatum game, Tabibnia et al. �2008� report MRIs of the brain that suggest similar results tothose above for fair and unfair behavior. Their design utilized an individual choice study usingonly participants who receive the “offer” �ultimatum�. First, the results suggest that the �recipient�participants differ in what they believe to be a fair offer. Second, those who judge the offer to be“unfair” show different patterns of brain activity than those who consider the offer to be “fair.”Finally, participants who accept an unfair offer had different patterns in their MRIs than those whoreject unfair offers �Tabibnia et al. 2008�.

A study by Harbaugh et al. �2007� that relates brain activity to altruism in decision makersalso illustrates the potential link of neuroscience to BAR. They studied the brain scans of 19

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female students who were asked to make a decision allocating $100 between a food bank andthemselves. The brain scans of the “altruistic” �gave more� and “selfish” �gave less� participantsshow that the altruistic participants exhibit greater activity in the part of the brain that reflectspleasure than do the selfish participants. The altruistic participants show significant activity in thatpart of the brain even when they were required to contribute a fixed portion of the $100 to thecharity. Studies of this type suggest that there is a physiological basis for the altruistic behaviorthat is observed in the real world. It does not explain if the behavior is inherent and hardwired�Hsu et al. 2008� or related to interacting with people and learned �Andreoni 1990�. The authorssuggest that they believe their results also would apply to male participants had they been includedin the study.

Zak and his colleagues introduced a line of neuroeconomic research that approaches the“black box” of human cognitive processes in a different way. They argued that the observedbehavior, in this case trust, is based on the brain’s response to a particular hormone. Trustingparticipants exhibit higher levels of the relevant hormone than nontrusting �i.e., economicallyrational� participants. This work is summarized in Zak �2008�. Kuhnen and Chiao �2009� showthat there also appears to be a genetic basis for the differences in the amount of dopamine andserotonin. In their study these differences, like those reported by Zak �2008�, are associated withdifferent patterns of behavior.

Summary: Individual Choice StudiesOverall, research focused on the individual’s decision-making behavior has played an impor-

tant role in BAR historically. The predominance of individual-focused research, particularlyamong North American and many Australian researchers, is easily observed by examining a recentissue of BRIA �2007�. It contained 13 papers. All of these papers could be classified as focused onthe individual even though they may describe in the scenario the existence of another/otherhypothetical person�s� or have a scripted confederate role-play the “other person.” Equally impor-tant is the diversity in topics/areas in which the research is located. Three were related to auditing.Four dealt with aspects of management accounting. Three were related to financial reporting/decision making. There was one in tax ethics, one in cross-cultural ethics, and one related toeducation. While this admittedly is a convenience sample, the results are similar to Shields �2007�.They likely are representative of current BAR in North America. A very different view of BAR inEurope would result from examining an issue�s� of AOS or other European-based accountingjournals.

This emphasis on individual-focused research is likely to continue to be true of BAR in NorthAmerica for several reasons. Many BAR questions focus on the behavior of individuals actingalone. For example, some of the studies involve one individual’s processing data provided byanother individual or a system �e.g., Fedor and Ramsey 2007�. Others continue to be concernedwith the cognitive processes of individuals �e.g., Joe 2003�. Still others involve norms, ethics, andculture, which typically have been studied by examining the behavior of the individual in isola-tion. Finally, the individual also may be the easiest approach for researchers.

Individual choice studies do not exist in isolation from the other categories of BAR discussedin this paper. As the research on strategic choice and group-focused behavior shows, understand-ing the behavior of individuals often is the basis for hypotheses about behavior in dyads andgroups. Behavior such as honesty �Evans et al. 2001; Cohen et al. 2007�, that has been exhibitedin studies in which the individual does not actually interact with another participant, can lead topredictions of behavior in dyads and groups that differ from those of classical economics. This isparticularly true because many of the individually focused studies are studies isolating one mem-ber of a network of individuals. This is readily apparent in the next section in the discussion ofparticipation.



There also are limitations in studying the individual in isolation. In part, this results from themovement in organizations to make groups and teams the decision-making unit. In addition, acertain amount of the richness found in the decision-making situation may be lost when BARisolates the individual from his or her environment.

Strategic Choice StudiesStudies that explicitly consider the participants’ strategic behavior are relatively new in BAR,

though strategic behavior often was implicit and important in earlier BAR. How managers behavein a participative management setting is an example of a strategic setting. Moving from anindividual choice study where the actor’s behavior is “inward facing” to one where another actor’sbehavior explicitly must be considered introduces the strategic dimension to BAR. In contrast tothe individual choice studies, in the strategic behavior studies the decision maker must considerthe choices made �or to be made� by an actual rather than a hypothetical fellow participant. Forexample, in a management accounting study, the “strategy” to which the participant respondscould be the choice of budget level set by another participant acting as “management.” While anindividual choice study informs us how the manager/agent responds to a given budget level, we donot learn which budget level the owner/principal would choose to offer to motivate the manager/agent. In an individual choice study, the researcher may set the independent variable �e.g., thebudget� at levels different from those a manager actually would choose.

A significant amount of experimental economics research uses experimental dyads �see Roth1995�. In BAR, strategic choice studies recognize the limitations in studying the individual inisolation from the environment and the importance in many settings of the behavior of the “other”party on the individual. Some argue that it is important actually to have the “other party” existwhenever the instructions indicate he/she does. Experimental economists argue that it is requiredfor one of two reasons. The first is “maintaining the integrity of the participant pool.” Experimen-tal economists often utilize the same pool of participants in different studies. In some studies, theparticipant’s experience in a prior study even is a criterion for selection. They argue it is importantthe participants believe what they are told. If the post experimental debriefing informs them thatsomething was not really the case, they may speculate in future studies about the true nature of thestudy. The other reason relates to the richness of the experimental setting. Unless the experimenterhas insight into how the other party will behave from prior field or laboratory research, includingthe actual behavior of a participant will increase both the potential insights from and the validityof the study. See Calegari et al. �1998� for an example of this issue.5

Negotiation StudiesThe negotiation process is ubiquitous in the business setting. For a review, see Tsay and

Bazerman �2009�. Audit firms negotiate with clients over changes in financial statements andaccounting methods �McCracken et al. 2010�, firms negotiate with suppliers when they establishoperationally intimate relationships �JIT�, and sub-units within the organization negotiate transferprices and/or quantities. While the surface characteristics of the situations are different, many ofthe behaviors may be the same �e.g., the strategies adopted by the parties�. They may differ oninformation asymmetry, division of payoffs, and relative power. The degree of information asym-metry would be expected to affect negotiation, as could the incentives of the parties. For example,in budgeting negotiations the parties typically are playing a zero-sum game. The slack absorbed bythe worker reduces the manager’s/principal’s profit by a like amount. In other cases, such as the

5 For a discussion of this literature from an auditing perspective but germane to all BAR, see Hooks and Schultz �1996�and the symposium in Auditing �e.g., Dopuch 1992 and Gibbins 1992�. For the contrary view from psychology, seeKelman �1967�.

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audit or transfer price settings, the negotiation game being played need not be a zero-sum game.Rather, a small concession by one party may be significant to the other. Such an asymmetry inpayoffs should affect the negotiation process. Negotiation studies also can be characterized basedon the relative power of the participants: those where the parties have equal power and thosewhere one party has an advantage.

The significance of the strategic interaction is of particular importance for BAR because ofthe importance of performance as a “response.” An example of how individual choice literatureand strategic choice settings are related can be found in Fisher et al.’s �2000� study of participationutilizing interacting dyads. In the framework utilized in this paper, this represents a paradigm shift.Early BAR into participative budgeting focused on how the “worker” would behave. Would theworkers take advantage of their private information to create slack? Young �1985� even had hisparticipants meet with a “supervisor” played by the experimenter or a colleague. However, the“supervisor” did nothing more than accept the worker-participant’s budget. Thus, Young’s �1985�study essentially is an individual choice study. While social pressure was present �the designforced the worker-participant to face a supervisor�, it omitted any negotiation over the acceptabil-ity of the worker’s proposed budget. The explicit power in the situation was vested with theworker. In reality, the budget-setting process is quite different. In the natural setting, the supervisoralso has significant power. Thus, while Young �1985� reported how the worker would act inisolation, important aspects of participation are better captured as a dyad that permits strategicinteraction.

A second area of negotiation studies where the use of dyads is present is in the transfer priceliterature. Like the participation studies, they are outcome-oriented. In an early study, DeJong etal. �1989� test the efficacy of various transfer pricing rules. Haka et al. �2000� vary the precisionof the accounting data the manager possesses. The participants receiving the less precise informa-tion negotiated strategically. They tried to achieve the best price at the risk of failing to reach anagreement. In contrast, the participants with more precise data used the negotiation process tocommunicate information to the other party about his or her position in an attempt to reach a moreinformed decision. Chalos and Haka �1990� and Ghosh �2000� also studied the negotiation processin the transfer price setting in laboratory experiments. Ghosh �2000� observed that when theincentive system is consistent with the sourcing of the input, the systems are perceived as fairerand the participants behaved in a less exploitive manner. Also see Luft and Libby �1997�.

How humans negotiate and what motivates them to behave in a particular way is a questionof interest to all BAR. Findings in one area have implications for the others. Calegari et al. �1998�report two interesting results concerning dyads using an auditing-based task. One relates to theoutcome of the negotiation process, the other to method. In their study, M.B.A. students, partici-pating in the experiments as “auditors” and “clients,” exhibited two types of behavior: competitivepairs and cooperative pairs. The competitive pairs behave as Calegari et al.’s �1998� economic-based hypotheses predict. However, the cooperative pairs exhibit what Calegari et al. �1998�describe as signaling and cooperative behavior. What causes the pairs to behave differently is anunanswered question that should interest BAR.

Calegari et al. �1998� also reported an interesting methodological result. The outcomes froma human-computer dyad were different from those of the human-human pairs. Obviously, thecomputer was not programmed to respond to cues/signals, such as willingness to cooperate, thatthe human partner might send. This reinforces the concern about the limits in utilizing the indi-vidual choice style of research when the “other party” has an opportunity to act/interact strategi-cally. This is especially true where the set of actions includes choices that could facilitate reachinga noncompetitive, but mutually beneficial, conclusion.

There are, however, settings when studying dyads in a laboratory may not be practical or evenfeasible. This would be especially true in cases such as Calegari et al. �1998�, where students may



not be suitable surrogates for professionals. This raises the issue of external validity. Researchershave tried to resolve this problem in an audit setting by studying the negotiation process usingprofessionals as participants in individual choice studies that “simulate” interacting dyads. Forexample, Favere-Marchesi �2006� studied the initial negotiation postures of auditors and clientsover a proposed change in the financials, giving the same case study separately to each type ofparticipant. They conclude that ex ante the clients have a better understanding of the auditors’initial position than the auditors do of the clients’. In a related study, Tan and Trotman �2007�proposed and tested a model of when in the negotiation process auditors should make concessionsto clients. Their experiment uses financial officers as clients and a computer simulation as theauditor who negotiates with the client �via email�. They report the clients’ responses and theclients’ strategies in responding to the simulated auditor. However, their findings should be viewedin light of Calegari et al. �1998�. How this initial difference and differing strategies would play outduring negotiations between financial officers and actual auditors remains an open question.Because of the potential problems involved in using actual auditors and their clients, it is unlikelyto be studied in an experimental setting using professionals as participants in both roles. We mayneed to rely on archival research to understand the behavior of these dyads �e.g., Nelson et al.2002�.

Settings with explicitly unequal power. Other papers have utilized dyads in negotiation/bargaining studies where the parties possess unequal power. These studies usually investigate thepresence or absence of the norm of fairness in economic man rather than negotiation in a specificsetting. They typically utilize either the ultimatum or the dictator game �Roth 1995�. In the dictatorgame, one person �the dictator� is given an endowment to allocate between self and another party�the recipient�. The recipient must accept the dictator’s allocation. These studies utilize actualrather than simulated recipients. Because the recipient is passive in the experimental setting, theuse of a dyad would appear to be intended to meet the criterion of not misleading the participants.6

In contrast, in the ultimatum game, the first party’s �the “proposer”� situation is identical to that ofthe dictator except that the recipient now may accept or reject the proposer’s offer. If accepted, theproposer’s offer determines each party’s payoff. However, if rejected, both parties receive nothing.

The results of studies using both games tend to support a norm of fair treatment expected bythe responders and recognized by the dictator/proposer �Roth et al. 1991; Berg et al. 1995�. In boththe dictator and ultimatum games, the first party makes an offer approaching, on average, 40percent of the endowment �Roth 1995�. This result appears to reflect the recognition by many ofthe participants of a norm that sets the “fair” allocation of the endowment.

Cheap talk research in dyads. The typical “cheap talk” study also reflects a setting wherethe strategic interaction is germane to the study �e.g., Kachelmeier et al. 1994; Rankin et al. 2003�.How will the party receiving the nonbinding message react to it? Obviously, such a study could bedone using the individual receiving the message as the focus. However, such a study would losethe behavior of the participant who is allowed to make the cheap talk commitment. That individu-al’s behavior also is of interest to the researcher. Thus, it is preferable for the study to use a dyad�potential sender and receiver� rather than only a receiver. In general, research has found that thecheap talk often is viewed by the recipient as if it is a binding commitment �e.g., Kachelmeier etal. 1994; Zhang 2008�. Cheap talk studies can be conducted in any setting in accounting where thecontext permits one party to communicate with and make a nonbinding pre-commitment to an-other party that, if true, should affect the other party’s behavior.

6 There are, of course, designs where the recipient-participant could be needed later for another experiment. For example,the recipient-participant in the early rounds could, in the later rounds or in another experiment, play the role of thedictator. The researcher could study the interaction between the amount offered to a participant and the amount subse-quently offered by that participant when acting as the dictator.

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Effect of non-negotiating third party. The work of Fehr and Gaechter �2000� and Zhang�2008� provide insight into why it is beneficial for the researcher to include all the potential partiesin a study. Fehr and Gaechter �2000� report that a third party, who only observes unfair behavior,is willing to incur a cost to punish the unfair participant. Zhang �2008�, in a BAR study, providesan interesting twist on the strategic interaction present in dyads. The dyad about which shehypothesizes consists of two managers �agents� who report to the same owner �principal�. Sheexamined the truthfulness and whistle-blowing behavior of two agents. Each agent’s cost is com-mon knowledge to the two agents, but asymmetrical information to the principal. Essentially, herfindings show that the strategic behavior of the members of the dyad �the agents� depends on theendogenous behavior �fairness� of the third party �the principal�. The actual presence of the thirdparty in the study had two benefits. First, it enhances the internal validity of the study. Second, itensures that the principal’s behavior in the experiment actually reflects how the principal wouldact. In this case, the principal offers a lower wage because of concerns over being cheated by theagents. This insight, in turn, can serve as a basis for future BAR on the principal’s behavior in thissetting.

Reputation. We all utilize information on another’s past behavior �i.e., reputation� in makingchoices. Similarly, managers must rely on the reputation of other managers in making investmentdecisions, and investors, analysts, and auditors rely on managers’ reputations in their interactionswith firms. However, there is limited research on the role of reputation in the willingness of oneparty to trust another.7 This reflects the design of experiments. Most studies, such as those de-scribed in the previous sections, use a “turnpike” approach. The participants are anonymouslypaired and typically do not “play” the same participant more than once. This is intended toeliminate reputation as a factor in decision making and as a potential confound. Thus, the questionof the reputation of individual players must be set aside.

But what is known is that when players interact over time, expectations and reputations areformed and, moreover, the quality of decision making may improve relative to the turnpike design�Schwartz and Young 2002�. Duffy et al. �2009� provide further insight into reputations. Partici-pants may not always recognize the value of acquiring information about the other participant’sbehavior, a form of reputation. They reported that participants who initially received costlessfeedback about the behavior of others utilized the feedback/reputation-related information. How-ever, those participants who did not receive feedback information until later in the experiment didnot utilize the information to the same degree. In addition, they report that when a nominal cost isattached to the feedback, participants did not buy the information even though it was quiteprofitable to do so.

Note that in the studies discussed above, reputation is very stylized: it takes the form of veryspecific information. This encapsulates the idea of reputation in the laboratory. However, in the“real world,” the information that goes into forming a reputation may be subjective and imprecise.Given the role that reputation can play in business settings, there is room for additional researchin this area.

Summary: Strategic Choice StudiesThe study of dyads is at the intersection of individual and group BAR. It offers valuable

insights into the individual’s strategic behavior and is important for three reasons. One is thatstrategic behavior is integral to many business activities. A second is that participants act differ-ently when the other party is present rather than hypothetical �e.g., Calegari et al. 1998�. Finally,

7 Archival markets research has concerned itself with audit firm reputation, particularly in the wake of Arthur Andersen�e.g., Barton 2005�. There has been very limited BAR in this area �Mayhew 2001, Mayhew et al. 2001�. BAR hasoperationalized the audit firm as an individual in experimental markets studies.



and perhaps most importantly, the use of dyads permits the researcher to study both sides of thestrategic interaction and do so over a series of iterations between members of the dyad. The dyadmay be composed of peers as in Zhang �2008� and Towry �2003�, or be hierarchical as in thestudies of budget negotiation �Fisher et al. 2000� and the dictator and ultimatum games.

BAR research undertaken thus far suggests that the presence of a “real person” with whom theparticipant interacts affects their behavior �Calegari et al. 1998�. BAR using dyads could be usefulin developing a better understanding of how managers and workers, as well as auditors and taxprofessionals/payers, behave in various settings, in addition to insights into the negation process.It also could reveal how “soft behavioral constraints” such as norms can affect behavior.

The nature of the interaction can vary, as can the mechanism used to achieve it. As even theultimatum game shows, both parties possess some power �i.e., the ability to affect the behavior ofthe other�, albeit in some cases a very “soft” power. The study of how they use this power and howthe parties interact �their strategies� is what makes the study of dyads interesting. It is important tonote that the results discussed above and elsewhere often run counter to the simplistic notion of theself-interested, wealth-maximizing “economic person.”

Because dyads can be viewed as a subset of group behavior, studying dyads yields potentiallyvaluable insights into group behavior. However, there are obvious limitations. The greater level ofcomplexity facing the individual members of a group increases with the number of membersinteracting. Thus, many of the laboratory studies reported below under group-focused BAR limitthe strategic choices available to the interacting parties. As useful as data gleaned from the studyof dyads may be, to better understand the group phenomenon in question researchers have turnedto alternative research methods relying on naturally occurring events �fieldwork, archival data,surveys, and interviews�.

The ability to undertake research on dyads and observe the strategic interaction of the partiesmay not be as easy as the BAR focusing on the individual. Dyad research at least doubles thenumber of participants required with a comparable increase in the cost of the experiment. It alsocan require a high degree of coordination. The participants must be available at the same time and,typically, in the same place. This suggests that research of this type is likely to take place in alaboratory or through fieldwork. The former is likely to mean student participants; the latter,professionals performing their job in their natural environment. This would appear to limit theamount of work of this sort that will be undertaken using nonstudent participants.

GROUPSThe label “group” in this context is used to include a variety of organizational structures.

Group is defined as any collection of individuals greater than two and typically no more than fourin laboratory studies. Rarely is it more than five members. This definition is admittedly arbitrary,but consistent with the literature in the area. The above definition does not specify a particularorganizational structure�s� for a group. Thus, group as defined for this section includes not onlypeer groups, but also teams and hierarchical groups.

Psychology research on group decision making initially focused on the quality and nature ofthe individual versus group decisions. Which makes the better decision? Which makes the riskierdecisions? For a review, see Sutton and Hayne �1997� and Daroca �1984�. Sociology was inter-ested in the development of networks �e.g., Homans 1951� and the affect of context variables ongroup behavior �e.g., Dalton 1959�. For a review of sociology based studies, see Miller �2007�.More recent studies have focused on the nature of the group processes. How does the compositionof the group �e.g., temporary or permanent� affect its decision? What is the effect of changes ingroup membership? How does the decision rule used by/imposed on the group affect their deci-sion?

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BAR on groups has addressed five broad categories: �1� individual versus group performance,�2� group decision processes, �3� the role of technical and accounting systems in group decisions,�4� the role of incentives, and �5� the role of a group’s characteristics in its performance. Manystudies have asked questions that relate to more than one of the above categories. BAR groupresearch has utilized the full range of research methods including experiments �e.g., Young et al.1993�, surveys �e.g., Chalos and Poon 2000�, protocols �e.g., Bedard et al. 1998�, video �Walkerand Aritz 2006�, and field research �e.g., Anderson et al. 2002�.

ParticipantsThe type of participants used in group research has varied depending primarily on the sub-

category of BAR being studied. As is described below, auditing studies have used auditors asparticipants whenever possible. Recently, studies have again begun to use students. This reflectsboth the declining availability of auditors as participants and the belief that student participantspossess the appropriate knowledge, skill, and experience for many group tasks.

In contrast, the study of groups in other areas, particularly management accounting, has useda more diverse set of participants. Laboratory studies typically have used students, albeit oftenwith significant work experience �e.g., Daroca 1984; Rowe 2004�. Managerial accounting re-searchers have studied “real people” in field studies �e.g., Anderson et al. 2002�, and surveys ofmanagers reporting on “on the job” experiences �e.g., Chalos and Poon 2000�.

Group Decisions and ProcessesIt is interesting to note that the much of the early research on groups in BAR was in auditing

�Schultz and Reckers 1981; Reckers and Schultz 1982; Trotman et al. 1983�. This likely reflectedthe overall level of BAR interest in auditing during this period, as well as the absence of teamworkin U.S. firms at that time. The findings of the auditing BAR studies generally are consistent withearlier non-BAR group research. For example, Schultz and Reckers �1981� report that decision-making groups exhibited higher confidence and less variability than individuals. In a topic moreclosely related to accounting than generic group research, Reckers and Schultz �1982� report thatgroups adhere to the accounting rules more closely than individuals. Indeed, because groups �auditteams� are the way audits are performed, the use of groups in auditing has been a continuing areaof BAR in auditing �e.g., Solomon 1987; Reckers and Schultz 1993�.

In management accounting, Daroca �1984� studied participation in a group setting. He re-ported that, as Becker and Green �1962� conjectured, participation could result in group polariza-tion against management, leading to negative rather than positive “gains” from participation.These findings, like those of Zhang �2008� and Greenberg �1990�, indicate that group involvementmay have negative outcomes for the organization if the leader’s style is perceived negatively bythe group.

Unlike the typical generic group study that focused solely on the group’s output/decision,Bedard et al. �1998� studied group processes as well as the efficacy of groups versus individuals.They utilized protocols developed from audio tapes to examine communication among groupmembers and identify what type of interactions characterized successful and unsuccessful groups.Because their sample was of necessity small, the findings must be viewed tentatively. However,they raised an important issue by delving into what makes groups effective. Accordingly, theystudied process as well as outcomes. Bedard et al. �1998� also investigated how the voting rule,formal or informal, affects group behavior. Given the range of possible rules �e.g., unanimity,majority rule, and leader with a veto�, it is reasonable to expect that the voting rule could affect thegroup’s behavior and output/decision �Birnberg et al. 1970�. This issue is relevant to any groupdecision-making setting within accounting. Given the size of Bedard et al.’s �1998� sample, it ishard to draw a conclusion.



Chalos and Poon �2000� used the group setting to study participation. They used a survey ofand interviews with 177 managers comprising 55 budget teams in a single firm to collect data onthe effect of group process on perceived quality of group decisions. They studied how the presenceof participation in the group’s capital budgeting process affects information sharing, budget em-phasis, and self-reported measures of performance. They report that participation positively affectsthe perception of the amount of performance information available, amount of information shar-ing, and the reported importance of the budget process. However, it is central to note that theresearchers did not observe the groups in action.

Role of Decision Support SystemsJust as an individual’s decision making can be affected by the use of a decision support

system �DSS�, group decision making can be altered by a DSS. Murthy and Kerr �2003� and Kerrand Murthy �2004� investigated the impact of different types of computer-mediated communica-tion �CMC� in different task settings on the quality of the group’s decision. Typically, the condi-tions compared are face-to-face communication and computer-based system�s�. The findings indi-cate that face-to-face groups outperformed CMC groups when problem solving was the measureof performance �see also Rowe 2004�. Interestingly, both CMC and face-to-face were equallyeffective in generating ideas, though performance appears to be sensitive to the task setting and thetype of CMC. Kerr and Murthy �2004� report that a bulletin board form of CMC outperforms“chat rooms” and face-to-face communication in a decision setting that requires the participants toexchange uniquely held information to reach a successful conclusion.

One caveat in evaluating the above findings is the use of student participants. Ho �1999� usedaudit partners, managers, and seniors to study the role of computerized decision support systemrelative to face-to-face communication in a going-concern evaluation. Her study reports thatgroups of both types considered evidence that individuals did not. She reports when comparing thetwo groups that CMC groups had greater agreement on the going-concern assessment than didface-to-face groups and had greater satisfaction with their evaluation. A possible explanation isthat the “impersonal” CMC setting may neutralize the ability of an influential/powerful individu-al�s� in the group to exert undue influence in the group’s decision.

Carpenter �2007� also used auditors in a group research study examining the recommendationof SAS No. 99, which requires the use of groups formally in the audit process through “brain-storming” sessions. Because the brainstorming literature in psychology using students had notuniformly reported the synergistic behavior expected from group discussion �Dennis and Valacich1993�, she studied the process in an audit setting using auditors as participants. She hypothesizedthat brainstorming groups would perform better than individuals or nominal groups in part becausethe group members were professionals “doing their job” in the experiment rather than studentparticipants performing a mundane task. Her results support the benefits of brainstorming. Hoff-man and Zimbelman �2009� extended Carpenter �2007�. They used brainstorming to improve theaudit program. In their study, a panel of experts brainstorm potential modifications in the frauddetection program for a case study. They report that auditors subsequently given the case and themodified program performed better than those who were not.

Based on the findings of Ho �1999�, Carpenter �2007�, and Hoffman and Zimbelman �2009�,it would appear that the findings of generic group research may not always apply to BAR. Thegood news for BAR is that it opens a wide variety of questions. The bad news is the ability tosecure access to professionals functioning in a group setting. In its early stages, research oncomputer-aided group decision making may need to rely on field and archival data.

Role of Incentive SystemsAs in other areas, the role of incentive systems has been very important in group research.

Management accounting group research recognizes the conflict between group incentives and

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individual incentives. When the contribution of the individual is identifiable, an individual-basedincentive system prevents the free rider problem, where the individual makes a minimal contri-bution to the group effort and secures a disproportionately large reward. However, when the onlyobservable measure is the group outcome, the manager is limited on what he/she can base thepayoff �e.g., Drake et al. 1999�.

Researchers have attempted to ascertain ways in which free rider behavior in groups might bemitigated. Towry �2003� argues that information on peers’ performance that is unknown to theprincipal/manager is observable by group members. Thus, the group members are capable ofmutual monitoring. She reports that the greater the members’ group identity, the more effectivetheir ability to monitor each other’s behavior �mutual monitoring� and the greater degree ofcoordination they can achieve.

Rowe �2004�, in a study that examined both systems and incentives, takes a slightly differentapproach to resolving the free rider problem. Rather than using monitoring, he used the “infor-mation system” to inform the group’s members that free riding in his task actually was sub-optimal behavior for both the free rider and the group. Rowe �2004� modeled the free riderproblem as a public goods dilemma. Each member of a four-person group decided how much oftheir endowment to contribute anonymously to a common pool. The amount in the pool wastripled and divided equally among the group’s four members without regard to how much eachhad contributed to the pool. Obviously, the self-interested strategy is to contribute nothing andshare whatever is in the tripled common pool. If all four members of the group follow a free riderstrategy, they would be no worse off than they were at the beginning of the experiment. At theother extreme, if all members of the group contributed their entire endowment to the pool, every-one would be significantly better off. Rowe �2004� found that the group members contribute �andtherefore receive� more when the information system informs an intact group of the benefits ofcontributing. This occurs even though the information system did not provide any new informationand there is no communication among group members.

The Impact of Extra-Group FactorsWhile all of the above studies were laboratory-based, BAR also has examined the behavior of

real groups. This permits the researcher to observe the effect of the setting in which the decisiontakes place. Rowe et al. �2008� and Anderson et al. �2002� used two different research methods tostudy the decision processes of groups in their natural setting. Both papers study �among otherthings� group conflict, the sharing of horizontal asymmetric information, and the potential role ofconsultants. Rowe et al. �2008� report the results of a longitudinal, participant-observer field studyof a particular cross-functional group within a division of a firm. The group was formed bymanagement to try to reduce costs. Initially, each group member behaved in a self-interestedfashion to retain slack and benefit their particular function in the organization. The outcome of thestudy shows that consultants, by redesigning the information system, were able to mitigate self-interested behavior �conflict� and replace it with more group-oriented behaviors. Rowe �2004�8

tested this finding in a laboratory setting.Post-decision, Anderson et al. �2002� used a survey supplemented with interviews of group

members within a single firm. They examined the effects of a large number of variables �e.g.,conflict resolution, group size, presence of consultants, importance of decision� on the complexityand speed of adoption of the ABC system by a group. One of the most significant findings is thatcomplexity of the ABC system increased with group size. They did not include any data on thegroup’s subsequent performance.

8 Despite the dates of publication, the field research was conducted before the experimental study.



SummaryGroup research is increasing in BAR. This reflects the increasing use of groups in practice

across areas of accounting. Moreover, because so much of the research is concerned with howgroups function, it would appear that BAR in one area of accounting is germane to others. Ingeneral, research suggests that, consistent with non-BAR research, group members have greaterconfidence in their decisions than individuals, there is less variability among the decisions bygroups than among individuals, and groups reach more conservative policy decisions. Because thetypical group study does not have a correct decision, the quality of their performance is not alwaysascertainable. However, Bedard et al. �1998� reported, in a study that did have a correct answer,that groups perform better than individuals, but still may consider the proper action and reject it.

Greater insight into group decision processes is needed if BAR is to understand why groupsand individuals make different decisions. This would permit BAR to make positive recommenda-tions about how groups should function rather than solely descriptive statements. Bedard et al.�1998� showed one way this could be done: using audio �or video� tape of the committee’sdeliberation. One question that emerged from Bedard et al. �1998� is the critical nature of thevoting rule adopted by the group. Others �Anderson et al. 2002� related selected group character-istic �e.g., group size and use of consultants� to the group’s recommendation. Group size led tomore complex systems, and the use of consultants facilitated reaching simpler decisions. Interest-ingly, the papers in this area have not examined the role of factors such as the members’ ex antewillingness to trust or cooperate on the group’s behavior and whether the group’s members arevolunteers or were assigned to the activity. The latter could be significant in the behavior ofreal-world group membership.

While the initial research involved face-to-face groups, recent studies �e.g., Kerr and Murthy2004� have examined the role of information technology on group interaction. In general, CMCresulted in more confidence and satisfaction than face-to-face communication. One can onlyconjecture why this is true. A possible study would be to insert the same influential or forcefulperson in each type of group �CMC and face-to-face� and test to see if CMC moderates his/herinfluence. It also is possible that utilizing CMC gives the group members a greater feeling ofinvolvement.

It would appear that group research can be conducted by and likely requires the use of avariety of methods—laboratory, fieldwork, survey, and even protocol analysis. It also is reasonableto assume that archival data may be useful for certain questions. Group research, like individualresearch, has certain limitations. Using participants �students or professionals� with no knowledgeof their history with the other members could affect the results. However, finding existing groupsthat can be observed in the field means a loss of control, in addition to the expenditure of time onthe part of the researcher�s�. Taking the same group members into a laboratory setting may not befeasible. Creating ad hoc groups in the laboratory using student participants may miss someimportant aspects of the group behavior and necessarily results in a less rich environment. Finally,every “observation” typically requires at least four participants. This can restrict the number ofobservations reported in a group study or create a need for a very large number of participants. Allof these considerations argue for the use of multiple methods to achieve convergent validity.

One type of group that has not received attention in BAR are groups that have an ongoingexistence within an organization. This would include committees and some teams.9 In thesegroups, the members likely have a “history,” both good and bad, with each other. As we saw with

9 Team is used here in the sports sense of the word: a group where each member has a specific responsibility. Thegovernance literature that has typically been archival empirical can be done as a BAR study of the board and/or the auditcommittee �see Cohen et al. 2008b�.

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dyads, familiarity affected interpersonal behavior �Favere-Marchesi 2006�. Many committees thatare intended to serve a particular function have continuing membership and have evolved rules orgroup norms that the members follow in transacting the committee’s business. This type of grouppresents a variety of issues, such as voting rules and coalition formation, that may have evolvedover time. For a discussion of this issue see Birnberg �2004�.

As was the case with the individual-focused BAR, group research has a linkage to other BAR.In this instance, it is organization-focused research. The linkage, however, is less obvious. Earlierorganization-focused BAR was more macro in character. The typical variables used in contingencyresearch are related to the organization’s characteristics �e.g., size, task uncertainty, and/or com-plexity�. More recent studies are organization process-oriented. This research is more concernedwith how a given organization decides rather than a single characteristic that varies across orga-nizations. Thus, the elements of the network whose output is being studied are important. Groupcharacteristics can be part of the characteristics of the network that are studied.

ORGANIZATION FOCUSThis research originated with Hopwood �1972�, who argued that when BAR observes prob-

lems with the organization’s control system, the focus of BAR should be the “fit” between thesystem and the organization rather than tinkering with the design of the system. He repeated thisconcern in his invited presidential address at the AAA 2006 Annual Meeting �Hopwood 2007�. Asnoted in the initial description of BAR focusing on organization, exactly which papers fall in thiscategory is not always obvious. Those BAR studies that present some difficulties in classificationexamine how particular characteristics of the organization’s environment affect its accounting/reporting systems, or they examine how those systems affect individuals or groups within theorganization �e.g., contingency research�. However, this problem of classification should be oflittle concern to researchers. For an overview of the methods used, as well as research findings inthis focus, see Covaleski et al. �1996�, Anderson and Widener �2007�, and Ahrens and Chapman�2007a, 2007b�.

BAR in this category has utilized a variety of methods including field studies, surveys, andarchival studies. Field studies typically involve studying a single organization �e.g., Hopwood1972� or multiple units within an organization �e.g., Otley 1980�. Data typically are collected afterthe event being researched has taken place via interviews, surveys, and observation of the orga-nization’s activities. In these studies, researcher-collected data may be supplemented by archivaldata from the unit being observed �e.g., Anderson et al. 2002�. Surveys in organization-focusedresearch often combine elements of field research and survey research. Interviews may precede thesurvey and be used to help design it, or the interviews may follow the survey and be used toclarify/amplify its findings. Archival BAR utilizes data collected by the organization�s� to examinethe effect of changes in systems or differences between systems. Ittner �2007� discusses thestrengths and weaknesses of this approach. A few studies in BAR �or cited in BAR� involvereal-time data collection utilizing participant observers, where the researcher is a part of theactivity �e.g., Rowe et al. 2008�.

As the various surveys of this literature indicate, the vast majority of these studies in BARinvolve management accounting in for-profit organizations �Dillard and Becker 1997; Merchantand Van der Stede 2006�. However, a few studies cover a variety of not-for-profit organizations�e.g., Covaleski and Dirsmith 1983�, audit firms �e.g., Dirsmith and Covaleski 1985�, and govern-mental units �e.g., Boland and Pondy 1983; Ansari and Euske 1987�. In financial accounting andauditing, research on organizations typically is related to fraud. For example, Cohen et al. �2008a�used archival news clippings to study the role of managers in firms where fraud was present.

Merchant and Van der Stede �2006� reviewed the extent of field research in BAR. Theyutilized what by their own admission was a restrictive definition of field research. To be classified



as a field study, Merchant and Van der Stede �2006� required that there be intensive collection ofdata in the field and extensive reporting of data in the paper. They reported that only one paper inBRIA during the period they surveyed �1981–2004� met their criteria, and the leading NorthAmerican journals �TAR, JAR, CAR, JAE, Auditing, JMAR, and BRIA� published a total of 23 �8percent� of the field studies. Ten of these were in JMAR and seven were in CAR �Merchant andVan der Stede 2006, Table 1�. This finding is not surprising. Though there are a number of activefield researchers in North America, an examination of Merchant and Van der Stede’s �2006� datareveals a significant portion of the organization-focused BAR is performed by European andAustralian-New Zealand researchers, and it is published in European-based accounting journals.AOS and Management Accounting Research �U.K.� together published 215 of the 318 �68 percent�field studies �Merchant and Van der Stede 2006, Table 1�. Obviously, these data underestimate thelevel of field research in North American BAR because many of the papers published in Europeanjournals were by North American-based researchers.

What distinguishes the organization-focused research from the research on individuals andgroups is the relative insignificance of the person�s� in the papers. As the breadth of visionexpands, the ability to focus on the more micro aspects decreases. The study by Anderson et al.�2002� illustrates this issue. They count the number of persons composing a team and ask howgroup size affects the organization’s ability to achieve a desirable outcome, but do not examine thebehavior of the individuals who composed the team.

The types of issues investigated in organization-oriented BAR are quite varied. A simplesummary includes the following:

• The effect of the “task” on the appropriate accounting/reporting system �i.e., contingencyresearch�.

• The effect of task and goal uncertainty on the nature of accounting.• The effect of internal and external forces on innovations/changes in the accounting/

reporting system.• The importance of accounting as compared to other metrics in the organization.• The role of various nontask characteristics of the organization on the organization’s ac-

counting and/or strategy.

Contingency StudiesContingency research has a long history in BAR. The earliest studies drew on the work of

Burns and Stalker �1961� and typically revolved around task characteristics such as task uncer-tainty �e.g., Hirst 1983; Gordon and Narayanan 1984�. This line of research raises the issue of the“fit” between the task’s/organization’s characteristics and the appropriate accounting system.Firms that adopt the appropriate accounting system given the organization’s characteristics, allelse equal, should perform better than those that do not have the appropriate fit between charac-teristics and system. Despite the intuitive appeal of this line of research, it has not been as popularas one might expect because of the difficulty in finding appropriate data and research design�Otley 1980�. Fisher �1995, 1998� and Chenhall �2003� reviewed the literature in this area. Fromtheir reviews it is apparent that organizations, like individuals, are diverse and differ on a varietyof dimensions. Each of these dimensions becomes a basis for research on differences in account-ing information and control systems.

A few studies examine the effect of individuals within the organization’s hierarchy on theform of control exercised. Hopwood �1972, 1974� examines the role of management style andother organization variables on the way the data of the accounting system are utilized. WhileHopwood’s research would appear to reflect a study of the individual, he reports that the nature ofthe organization’s task affected the management style, rather than the selection of a managementstyle being a “free choice” �see also Otley 1978�.

26 Birnberg


Closely related to these “traditional” contingency studies is the work of Simons �1987, 1990�.Simons studied the fit between the strategy of the organization and the form of its control system.He argues that there is a need for a fit between strategy and control system. Innovative strategiesrequire controls that permit the manager to make critical decisions �i.e., innovate� if they are tooperate effectively. In a recent study on this issue using a variety of data collection methods,Kober et al. �2003� argue, unlike Simons, that the link between strategy and control systems overtime works in both directions. Not only does the organization’s strategy affect the form of thecontrol system, but the control system may alert management to the need for a change in strategy.This idea is consistent with Hedberg and Jonsson’s �1978� conception of the role of the informa-tion system.

The research of Simons �1987� and Kober et al. �2003� illustrates an important method issuein organization-focused research; that is, a cross-sectional versus longitudinal approach to organi-zational research. Simons’ �1987� work is static. He examines multiple organizations at a givenmoment in time using cross-sectional analysis. Ideally, the firms in this type of study are assumedto be in equilibrium, so there already is an appropriate fit between strategy and control systems. Incontrast, Kober et al. �2003� did a longitudinal study of a single organization. This permitted anexamination of changes in the nature of the organization’s control system over time. Note that theanswer to the contingency question of fit between strategy and control system does not change.However, the longitudinal study provides a richer picture of how the fit is achieved, maintained,and ultimately may again change when the firm’s environment changes. In a study similar toKober et al. �2003�, Cardinal et al. �2004� describe the evolution of an organization’s controlsystem over a longer period. Hopwood �1987� used historical research methods to obtain insightinto how Josiah Wedgwood adapted the activities of Wedgwood Potteries to fit changing economicconditions. For a discussion of the use of historical accounting research, see Luft �2007�.

A set of studies that relate incentives to the nature of the task would appear to potentiallyrelate to both contingency research in organizations and individual-focused BAR. These studiesexamine at the organization level the same issue as Chow �1983� and others studied at theindividual decision level. The original behavioral paper on this question by Ouchi and Maguire�1975� clearly was an attempt to examine the fit between incentive schemes used in particular tasksettings and the prescriptions of agency theory. For example, do firms in which the outcome of theworkers’ task is measurable, but effort is not, reward the worker on performance as agency theorysuggests? Their findings and later work, such as Eisenhardt �1989�, support the broad outlines ofagency theory. A more organization-focused study examines the new �nonfinancial� measuresdeveloped by the organization to increase productivity. Banker et al. �2000b� took advantage of anaturally occurring experiment and used archival data from a hotel firm to assess the efficacy of anew set of procedures intended to enhance profitability by increasing customer satisfaction andtheir return visits. Banker et al. �2000a� used archival data to examine the effectiveness of anorganization’s decision to alter its incentive scheme. Both of these studies are concerned with theorganization’s policies and the policies’ effects on the organization’s performance rather than thepolicies’ effects on the individuals who compose the organization. This approach is similar tostudying the behavior of markets as opposed to the actions of the individuals participating in themarket.

Burchell et al. �1980� extended the nature of the contingencies analyzed. They argued that therole of the accounting system varied not only based on the characteristics of the task, but also withthe extent of agreement present among the parties on their goals. Burchell et al. �1980� argueagainst the role of accounting as a neutral technical system and a source of objective data fordecision making. Rather, they argue both the knowledge of the task and agreement over goals inmany cases are problematic. Thus, the outputs of the accounting system may be seen differently bythe parties involved and can serve a variety of purposes depending on the situation. For example,



they argue that the accounting data may be the inputs into “argument machines” �high knowledgeand low goal agreement� or “learning machines” �low knowledge and high goal agreement�.Different settings place different stresses on the accounting system. Miller and O’Leary �1987�discuss how these forces can work.

System InnovationPeriodically, accountants have studied how innovations in the firm’s accounting system occur.

There are two broad types of studies. One attempts to ascertain the characteristics of firms adopt-ing the accounting innovation. Others are concerned with ascertaining the characteristics of asuccessful innovation.

Few studies attempt to understand why innovations such as ABC or balanced scorecard areadopted by some organizations and not others �e.g., Chenhall 2003�. Given the range of organi-zations required to study the diffusion of an innovation, it is not surprising that the data arecollected through the use of surveys. Gosselin �1997� studies the effect of the organization’sstrategy and structure on the adoption of ABC. Obviously, the economic environment also isrelevant. It is only conjecture, but one might argue that the advent of the recent changes inmanagement and accounting �e.g., ABC, value chain analysis, balanced scorecard� resulted fromthe presence of external pressure on the organization in the form of significantly increased �for-eign� competition. How desirable would organizations have found the adoption of ABC in theabsence of competition from Japan? Would organizations have adopted it if their profits had beenhigh?

It also is important to study why innovations such as ABC and Balanced Scorecard do notsucceed. Brunsson �1990� suggests one explanation. He argues that there is a difference betweenchoice of a system �decision making� and gaining approval from the appropriate members ofmanagement to implement that system. The latter, Brunsson �1990� argues, is a political decisionreflecting the diverse goals and views of the organization’s members. His argument is in the spiritof Burchell et al. �1980� and argues that decisions reflect diverse goals and power.

Role of Accounting in the OrganizationOne of the most interesting lines of organization-focused research discusses the relative im-

portance of accounting data in the organization. As accountants, we may believe that accountingdata are the basis for decision making in organizations. But there is evidence that accounting is notalways the primary basis for decision making. Lawrenson �1992� researched decision making inBritish Rail when engineers occupied the dominant role in the organization. Technical �engineer-ing� data were of primary importance and were supplemented by accounting data. This changedwhen the Thatcher government proposed privatizing British Rail. It then was important that theorganization be able to show a profit. Accounting data became of paramount importance in deci-sion making �Dent 1991�, and engineering data were relegated to a secondary role.

Researchers have studied why accounting achieved a particular role in the organization look-ing at other factors. It would appear that the social environment within which accounting existscan affect its role in the organization �Bougen 1989�. Ansari and Euske �1987� reported thatintra-organization conflict affected the extent to which a new system was implemented by repairdepots. While the home office �DOD� thought it was implemented, the repair depot continued tomanage its activities with the old system. Berry et al. �1985� report a similar finding withinEngland’s National Coal Board. At the operating level, the accounting system focused on costs andoutput. At the district and central management level, the accounting system was much moresophisticated and focused on planning and control. The two systems appear to have coexistedbecause they met the differing needs of the different user groups. Overall, it would appear thatforces within the organization influence the preference for and use of accounting data.

28 Birnberg


As noted earlier, the boundaries for organization-focused research are not without contro-versy. Others �e.g., Dillard and Becker 1997� have a broader view of what would be included.Many of the studies they would include in this section relate to how accounting serves broadersocietal issues. The emphasis of these studies, however, is better understood in the context ofaccounting and its societal context. Thus, I have chosen to consider their focus, which is onaccounting and the external environment, in the next section.

Summary

Organization-focused BAR asks how the characteristics of the organization affect the account-ing system. These characteristics have been very broadly defined. At their simplest, the character-istics refer to the nature of the firm. A more complex view relates to how accounting and/ororganizational innovations impact the nature of the organization’s adoption of a particular account-ing system. At the other extreme are those studies that are intended to understand the relative roleof accounting in the organization. Is it the metric used in making decisions in the organization oronly one of the metrics used? What factors influence the answer to the previous question? All inall, it reflects a broad literature that is most concerned with management accounting and for-profitorganizations.

The research reviewed in this section continues to reflect the richness of methods and disci-plines utilized in BAR. The methods used reflect the same wide array found in the other researchfield: field surveys combined with interviews, archival data, and naturally occurring experiments.The data are both qualitative and quantitative and the research may investigate anywhere from asingle unit within a firm to multiple organizations.

The most striking aspect of the organization-focused BAR is the disciplines on which theresearchers draw. They tend to be a different set from those found in the other sections reviewed.Individual, dyad, and group studies draw primarily from psychology and economics and, to amuch lesser degree, on sociology for both theories and method. In organization-focused BAR, it isexactly the opposite. Organization-focused BAR draws more on organization theory and sociol-ogy. Data often are qualitative, leading the researchers to rely heavily on their interpretation of thedata and to “draw conclusions” rather than present the results of statistical tests with their apparentobjectivity.

It would be a mistake for researchers who do not do organization-focused BAR to ignore it.Not only are the findings relevant to those who wish to understand how accounting functionswithin organizations, but this research often serves as the basis for more controlled studies that arenarrower in their focus. Conclusions drawn from small samples or from qualitative data mayprovide laboratory researchers with an issue that merits further inquiry. In this regard, see Rowe�2004� and Rowe et al. �2008�, in which case the latter informed and motivated the former. Therealso has been a link between organizational culture and individual �ethical� behavior �Windsor andAshkanasy 1996�. Indeed, the role of an organization’s culture could affect and/or reinforce otheraspects of individual behavior �e.g., trust, honesty�.

ENVIRONMENTAL CONDITIONSThe BAR included in this focus is concerned with the interaction between society and ac-

counting and vice versa. BAR of this type examines how the environment �i.e., the context� inwhich the organization exists affects accounting and how the resulting accounting affects themembers of the organization. In that sense, it is a study of the context within which accountingcomes into being and how the environment affects the development of the resulting systems. It



also studies how accounting can affect the environment in which the organization carries on itsactivities.10

Research in this area draws on a different set of nonaccounting research than the studiesdiscussed in the previous sections, including a variety of sociological and philosophical theoriesand theorists �see Cooper and Hopper 2007�. The research may be perceived as more diverse thanother foci, but this reflects the difference in theory base rather than issues. The general topicsinclude the following:

• The way environment and/or environmental events have influenced accounting in the firm.• The manner in which accounting has been used to “control” or manipulate firm members

or society.• The impact of the firm’s accounting on the firm’s external environment.• The simulation of macro policies that do not involve accounting choices, including studies

of market mechanisms.The first two topics are the most closely related conceptually. The environmental forces affect

the organization’s environment and the nature of the accounting that develops within the organi-zation. The particular accounting system that results from the environmental forces may have asits intent specific effects on the behavior of the organization’s members. The latter two researchstrands are quite distinct. The third type of research includes both examples of how accounting isused to affect the organization’s external environment as well as unintended effects of accountingon the environment. For a review of this research, see Baxter and Chua �2003� and Cooper andHopper �2007�. Simulation through BAR studies of proposed policy changes examines the mannerin which accounting policy can affect policy issues or is linked to such issues.

An element of the environment, national culture, by definition is a part of this focus. Nearlyall BAR on the effects of national culture are related to the behavior of individuals �researchdiscussed under the individual focus�. An exception is Fligstein �1998�. He discusses the role ofnational culture on the importance of quantification. He contrasts France and the U.S., where thelatter’s culture stresses measurement to a far greater extent than the former’s culture does. Hisarguments suggest the preference for rule-based versus principle-based accounting is rooted in thenational culture of the two countries. It might also explain the different foci of North Americanand European BAR.

Power and ConflictA central theme of much of BAR in this area is the attempt by individuals or groups to exert

power over others and the resulting conflict. The argument, as advanced by Cooper and Hopper�2007� in their review of the critical theory literature, is that one cannot fully understand theaccounting system within an organization without examining the social, political, and economiccontext that produced it. Moreover, once in place, they argue that the system has implicationsbeyond its mechanistic function. It affects the behaviors within the organization beyond thoseusually ascribed to the system.

A significant portion of contemporary BAR in this area draws on the work of Foucault �1977�on power and control. To those researchers, accounting is not �only� a means of measuring andreporting outcomes, but more importantly is a means of exerting control over other “units” �e.g.,Miller and O’Leary 1987�. Thus, it is concerned with the process through which the change occurs

10 For purposes of classification, the question is the relative degree to which the research is concerned with the externalenvironment and the role of accounting in the organization. Dent’s �1991� paper easily could have been considered inthis section. Its inclusion in the organizations section reflected its relationship to the other papers �e.g., Lawrenson 1992�discussed there.

30 Birnberg


and the relative power of the parties who cause it to occur. This, in turn, means that the studiestend to reflect events occurring within a single “organization.” The organization typically is a firm,such as Caterpillar �Miller and O’Leary 1997�. However, others have studied broader organiza-tions such as the �English� National Coal Board �Berry et al. 1985�, not-for-profits �Covaleski andDirsmith 1983�, and standard-setting bodies �Durocher et al. 2007�.

This research has been more active in the study of public management compared to otherareas of BAR discussed here. See Cooper and Hopper �2007, 222–228� for a review. The centraltheme to these papers, regardless of their particular context, is the need to understand accountingsystems as the product of forces both internal and external to the organization. They reject thenotion that changes in systems always result from rational decision making. This can be inter-preted by extending the approach of Burchell et al. �1980� to an inter-organization context. Whengroups in the environment have different goals, accounting is not perceived as objective by theparties. Rather, they are selective in the accounting data they use to defend/justify their position orattack their opponent’s position. While this process often is explicit and observable �e.g., changesin specific sections of the tax code�, more typically it is not. To understand why an accounting/measurement system is in place and how it came to be, we must analyze the events that precededits adoption. While the questions, indeed, are behavioral, they may lead us to using historicalresearch techniques �see Luft 2007 or Jones and Mellett 2007�. An example of this approach isJeacle and Walsh �2002�, who studied the evolution of credit analysis and the shift in responsi-bility �“power”� that accompanied the changes.

Another interesting example of this research is Durocher et al. �2007�. They review theliterature discussing various groups’ attempts to influence the financial accounting standard-settingprocess. They develop an explanatory theory to describe whether a user group attempts to influ-ence the process. It reflects the fact that, in studying the behavior in the “environment,” many ofthe same issues discussed under other foci of analysis in this paper also exist in this context. Forexample, Durocher et al. �2007� utilize models similar to those found in BAR relating to themotivation of the individual to explain the behavior of the groups involved. It also utilizes themesof power and legitimacy found in this paper under organizations.

While much of this literature, almost by definition, is a series of unrelated case studies, thereis a degree of overlap. This overlap, in turn, provides the basis for more general conclusions. Forexample, in the final phase of their study of U.K. health service, Jones and Mellett �2007� discussthe same “environmental force” �Thatcher’s desire to privatize governmental services� as Dent�1991� does for British Rail.

How Accounting Affects the Organization’s EnvironmentThere is much less BAR in this area. One type could be labeled an “unintended consequence”

of the accounting system. These are changes that occur externally to the organization as the resultof an organization’s accounting innovation, but were not the intent of the innovation. An exampleof such a consequence is the evolution of standard sizes in clothing. Jeacle �2003a� argues that thechange occurred as the result of standardizing production and the adoption of standard costs in theclothing industry. She also described the role of standardization on other industries �Jeacle 2003b,2005�. While many other examples such as this may exist, relatively few have been researched.

Organizations also consciously use accounting to influence their environments. One exampleis Chwastiak �2001�. She summarizes an interesting series of papers describing how measurementsystems were used by the Department of Defense �DOD� to legitimize the Vietnam war effort andthe related expenditures. She argues that, because of pressure from external groups, accountingsystems were used to provide an aura of efficiency that was not truly present. Her central argumentacross these papers is that the DOD responded to the external pressure groups by selecting anaccounting system that provided the appearance of efficiency and effectiveness that, in reality,



was not present. The intent was to provide a rationale for expanded military budgets and isconsistent with what Fligstein �1998� would have labeled the U.S. national culture.

It is not unusual for organizations to use press releases and other disclosures to presentinformation supporting a particular point of view. Tinker and Neimark �1987�, for example, showhow an organization, General Motors, used accounting �their annual reports from 1917 to 1976� topresent their position on the social issues of gender and class.

Simulation of Policies and Market Mechanisms

BAR on the effect of new accounting policies was discussed under individuals because theresearch question concerned how the individual would respond to an accounting change, be itinternal �e.g., the balanced scorecard� or external �e.g., partial consolidations�. These studiesclearly are accounting research.

Behavioral research conducted by accounting researchers concerned with economic policyand market mechanisms clearly lies within the domain of behavioral research and experimentaleconomics. The issue is whether being performed by accounting researchers qualifies them asbehavioral accounting research. This line of study is included, albeit briefly, to indicate the scopeof the behavioral research being done by accountants.

While this research primarily deals with generic topics, it is possible for studies using experi-mental markets to examine issues clearly with the BAR domain. A study of this type can examinethe role of auditing and auditors in the behavior of the market for assets. While this researchtypically has been done using archival markets data, experimental markets provide the researcherwith the opportunity to observe conditions that currently do not exist, may not exist to a sufficientdegree, or where the required data are not available. An example of this is Ackert et al. �2001b�,who studied the effect of uncertain litigation cost on seller behavior.

The research done on market mechanisms �i.e., various types of auctions� is most relevant tothe study of markets in experimental economics. For a discussion of the nature of this research, seeSunder �1995�. The papers are unlikely to appear in accounting journals. Their findings may haverelevance to markets within the organization. However, thus far there is no research in this area.Other research has focused on how particular characteristics of a market such as information�Ganguly et al. 1994�, the use of “circuit breakers” in a market �Ackert et al. 2001a�, and bubbles�Ackert et al. 2003� affect the outcomes. Dopuch et al. �1989� discuss the role of experimentalmarkets in auditing research.

Summary

Perhaps the most significant contribution of the BAR reviewed in this section is not thespecific findings. Rather, it is its central theme: accounting does not exist in a vacuum, and factorsand forces external to the organization affect the accounting system and, in turn, the members ofthat organization. It is equally, though less obviously, the case that changes in the organization’saccounting system can impact the external environment. As the result, this research can differsignificantly from BAR discussed in the three previous sections. This BAR often involves alongitudinal �historical� study of an organization and examines the role that relative power plays inthe development of the organization.

Environment-focused research draws on a different research knowledge base than that whichpredominates in the other areas. It draws much more heavily on sociology, anthropology, andcritical theory research in other research domains. This tends to give the impression that this BARis distinct from and unrelated to the other research foci. In reality, it can be viewed as providingthe context within which the other research, particularly organization-focused research, must be

32 Birnberg


viewed. This does not mean that it is an input to all BAR. However, just as organization-focusedresearch may inform group- and individual-focused BAR, this research may inform organization-and group-focused research.

The use of experimental markets to study macro behavior of investors under particular con-ditions appears to be an emerging area �see Moser 1998�. As such, it represents the obverse to theindividual-focused research on investor behavior. This research may alter the balance of financialaccounting BAR from the behavior of the individual to the manner in which the sum of thesebehaviors work their way through the market mechanism just as archival financial accountingmoved the focus of accounting research from the individual effects to market effects.

CONCLUSIONEach section of this paper ended with a summary intended to reflect the role and direction of

research in that area. Thus, the conclusions that can be drawn reflect the overall trends in thesediverse areas. In general, it would appear in the 20 or so years since Birnberg and Shields �1989�,BAR has continued to flourish. All of the foci used to organize the research in that paper havecontinued to develop.

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