A stated preference approach to the choice of financial reporting regimes and techniques

Student thesis: Doctoral Thesis

Abstract

The aim of this thesis is to investigate companies' choices in financial reporting. This research first identifies that regimes and techniques are a firm's two major accounting choices. It then establishes that a two-stage choice model of regimes and techniques is appropriate for choices of this sort. The thesis investigates the nature of regime choices and technique choices and the relationship between them. Furthermore, this study recognises three choice patterns in the two-stage choice model: two types of sequential choices and a nested choice. Lexicographic and colexicographic preference orderings can be used to understand the two sequential decision-making processes. The nested choice can be regarded as a simultaneous process. Interview data shows these forms of choice behaviour. The empirical basis of this study applies a stated preference approach to estimate companies' adoption costs (C) and benefits (B) of accounting modes. Primary source data on net benefits was gathered from companies in the UK and Taiwan by questionnaires and face-to-face interviews. The analysis of this research implies that the stated costs (C) and benefits (B) reflect companies' rationale behind accounting choices. Thus, the usefulness of the stated preference approach for understanding regime and technique choices is established. Using measured stated costs and benefits, this research calibrates firms' net utilities (B-C) and ratio utilities (B/C) arising from adopting a specific regime or technique from the choices available. It is observed that companies' accounting decisions generally follow a rational net-benefit analysis, given free choices. That is, companies typically select that accounting mode which leads to the highest adoption net-utilities. These findings suggest that the cost-benefit analysis, based on stated preferences, helps our understanding of firms' choice behaviour in financial reporting.The results of nonparametric tests also indicate that UK and Taiwanese companies often do not perceive any net benefits from implementing IFRS.
Date of Award1 Nov 2014
LanguageEnglish
Awarding Institution
  • University Of Strathclyde
SupervisorJulia Smith (Supervisor) & (Supervisor)

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