Contagion vs. Intrinsic Factors of Accounting Policy Choice Público

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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School	Laney Graduate School
Department	Business
Degree	PhD
Submission	Dissertation
Language	English
Research Field	Economics, General Business Administration, Accounting
Palavra-chave	Stock options Inventory Depreciation Accounting choice Diffusion Contagion
Committee Chair / Thesis Advisor	Waymire, Gregory, Emory University
Committee Members	Barton, Jan, Emory University Hecht, Gary, Emory University Demerjian, Peter, Emory University

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