Contagion vs. Intrinsic Factors of Accounting Policy Choice Público
Reppenhagen, David Andrew (2010)
Abstract
Abstract
Contagion vs. Intrinsic Factors of Accounting Policy Choice
By David Reppenhagen
I examine how a firm's accounting methods can be influenced by the
choices of other
firms, which I label contagion. I model accounting method choice as
a combination of
intrinsic propensities to adopt a method and contagion effects. I
predict contagion of
accounting methods occurs for two reasons: 1) adoption decisions of
other firms are
informative for the adoption decision and 2) prior adoptions change
the net benefits of
the decision. I test these predictions in the stock option
expensing setting where firms
had the choice to use the intrinsic or fair value method. Using a
firm-level diffusion
model, I document evidence consistent with my predictions. I also
predict that the
strength of contagion will vary based on the characteristics of the
accounting choice.
Specifically, I expect that the presence of direct cash flow
effects of an accounting
choice (e.g., tax effects) will be associated with less influence
of contagion factors
relative to accounting choices without any direct cash flow
effects. I test these
predictions in the inventory and depreciation method settings.
Since inventory has a
direct impact on taxes, due to the tax conformity rule, I expect
contagion will be less
influential in the accounting choice decision than in the
depreciation setting. The data
is consistent with this prediction. However, the prediction is
across empirical settings,
so I cannot provide a test of statistical significance. Thus any
inferences must be made
cautiously.
Table of Contents
TABLE OF CONTENTS
CONTENT PAGE
1. Introduction 1
2. Historical Background of Accounting Choices 5
2.1 Stock Options and Expensing 5
2.2 Inventory and Valuation 7
2.3 Long-Lived Assets and Depreciation 8
3. Hypotheses Development 9
3.1 Research Question One: How Does Contagion Occur? 10
3.1.1 Information-Based Contagion 11
3.1.2 Spillover-based Contagion 15
3.2 Research Question Two: Which Firms Are More Susceptible to
Contagion? 16
3.3 Research Question Three: Does Contagion vary among accounting
choices? 17
4. Research Design 18
4.1 Model 18
4.2 Variable Definitions and Predictions 20
4.3 Model Statistics 24
5. Data and Results for Research Questions One and Two 25
5.1 Empirical Setting 25
5.2 Sample Selection 26
5.3 Descriptive Statistics 28
5.4 Test of Hypotheses 1, 2, and 3 29
5.5 Robustness Checks 33
6. Data and Results for Research Question Three 34
6.1 Empirical Settings 34
6.1.1 Inventory Valuation and Costing 35
6.1.2 Depreciation of Long-Lived Assets 36
6.2 Sample Selection 37
6.3 Descriptive Statistics 39
6.4 Test of Hypothesis 4 40
7. Conclusions 42
References 45
List of Figures
Figure 1 Diffusion of Methods 52
Figure 2 Model Description 53
Figure 3 Stock Options Timeline 54
Figure 4 Stock Options Adoptions Over Time 55
Figure 5 Stock Options Survival Graphs 56
List of Tables
Table 1 Sample Selection for Stock Option Expensing 58
Table 2 Industry Membership (1-Digit SIC) 59
Table 3 Descriptive Statistics for Adopting vs. Non-Adopting Firms
for Stock Options 60
Table 4 Correlations of Intrinsic variables 62
Table 5 Propensity to Adopt Fair Value (H1a, H1b, H2) 63
Table 6 Test of H3a, H3b, H3c - Susceptibility to Prior Adoptions
66
Table 7 Sample Selection for Inventory and Depreciation Samples
69
Table 8 Industry Membership (1-Digit SIC) For Inventory Sample
70
Table 9 Industry Membership (1-Digit SIC) For Depreciation Sample
71
Table 10 Descriptive Statistics for Adopting vs. Non-Adopting Firms
for Inventory Sample 72
Table 11 Descriptive Statistics for Adopting vs. Non-Adopting Firms
for Depreciation 74
Table 12 Propensity to Adopt FIFO for the Inventory Sample 76
Table 13 Propensity to Adopt SL for the Depreciation Sample 79
Appendices
Appendix A: Derivation of the Strang & Tuma (1993)
Heterogeneous Diffusion Model 82
Appendix B: Variable Definitions 85
About this Dissertation
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