Hahn 2007

Accounting Forum 31 (2007) 305–322

Accounting research: An analysis of theoriesexplored in doctoral dissertations and their

applicability to Systems Theory

William Hahn ∗Department of Accounting and Management, Southeastern University, Lakeland, FL 33801, United States

Abstract

This study examined theories used in accounting doctoral dissertations and found that dissertations in thisdiscipline test theories drawn from economics, finance, psychology, and sociology, with 53% from economicsand finance and 27% from psychology. Further, a primary conclusion of this paper is that doctoral researchin accounting explores subsets of organizational activity consistent with the premises of Systems Theory.© 2007 Elsevier Ltd. All rights reserved.

Keywords: Accounting; Research; Systems Theory

1. Introduction

In a comprehensive study of accounting theory, the Committee on concepts and standardsfor external financial reports concluded that the accounting profession does not have a generallyaccepted base theory (AAA, 1977). Nevertheless, accounting theorists have focused on the abilityof accountants to provide information useful for decision purposes (Carnegie & Napier, 1996) andinformation usefulness was incorporated into the FASB’s (1978) Statement of Financial Account-ing Concepts No. 1 as a primary function of the financial accounting discipline. Similarly, recenteditions of college accounting textbooks emphasize the importance of accounting information forthe successful conduct of a ‘value adding’ transformation process (Edmonds, Edmonds, & Tsay,2003; Ingram, Albright, & Baldwin, 2004; Reimers, 2003).

The use of the transformation process as a basis for structuring textbooks highlights accountinginformation’s contribution to organizational growth and prosperity. Textbooks, however, fail toidentify Systems Theory (ST) as the framework from which the model is drawn. Furthermore,

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306 W. Hahn / Accounting Forum 31 (2007) 305–322

Miller (1972) points out that an organization, regardless of its social function, is a collectionof specialized subsystems that must be effectively coordinated in order to grow and prosper.Coordination requires decision-useful information that promotes organizational learning. Senge(1990) posits that an organization does not start as a superior performer. Rather, it learns to achievethrough ‘systems thinking’. Thus, by omitting ST from accounting textbooks, and discussionsof accounting theory, educators overlook not only an inter-disciplinary educational opportunity,but also an opportunity to show how subsystem accomplishment and coordination is important toorganizational sustainability.

Morgan and Willmott (1993) lament the invisibility of accounting in organizational manage-ment textbooks, and point out that students in other business disciplines, such as leadership,marketing, and human resources are not well grounded in accounting’s contribution to orga-nizational well-being. They encourage authors in these disciplines to incorporate a discussionof the social value of accounting. Interestingly, Morgan and Willmott fail to call for account-ing textbooks to do the same in regards to other disciplines. They conclude with a call forincreased research that demonstrates the relationships between organizational subsystems thatremains unanswered. Similarly, Morgan and Smircich (1980) and Williams (2003) point out thatmost accounting research, grounded in positivist economic science, has a subsystem orientation.Troubled by the dominance of positivist economic research that imposes a rigid framework onorganic, dynamic, multi-dimensional organizations (systems), they encourage a discourse on howaccounting benefits both organizations and society.

The purpose of this study is three-fold: first, to explore accounting theory from a systemsperspective; second, to identify theories employed in accounting research; and third, to stimulatethe discourses of accounting and Systems Theory. To accomplish these aims, we examine theaccounting profession’s search for a theoretical framework; through a review of classical literatureand by analyzing doctoral dissertations to identify the theories tested. In addition, we appraise STliterature and the theories motivating doctoral dissertations from a ST perspective to assess theirrelationship to this theoretical framework.

It was found that accounting dissertations investigate theories borrowed from the disciplinesof economics, finance, psychology, and sociology. The most commonly used theories are theefficient market hypothesis, the capital asset pricing model, and the discounted cash flow valuationmodel. When considered from an organizational perspective, accounting research is reductive inscope because each study investigates a specific subset of accounting activity. However, all of thetheories used in accounting dissertations relate to an aspect of subsystem operation and, therefore,dissertation research was in harmony with the tenets of ST.

2. Literature review

2.1. Early theoretical literature

Prior to the conclusion by the Committee on concepts and standards for external financialreports that ‘a single universally accepted basic accounting theory does not exist at this time’(AAA, 1977, p. 1), a robust dialogue on accounting theory was exchanged in the literature,primarily in The Accounting Review. While complete coverage of this debate is beyond thescope of this paper, representative examples highlight the dynamic nature of the discourse. Forexample, Soujanen (1954) identified among large corporations a trend of embracing a socialconcept of the firm. In that paper, he defined an organization as a group of persons pursuinga common goal and following certain rules of conduct, the essence of which he drew from

W. Hahn / Accounting Forum 31 (2007) 305–322 307

Cole (1920). Soujanen argued that within an organizational setting, a myriad of decisions aremade, all of which aim at the growth and preservation of the organization and remain con-sistent with the going concern concept. In order to grow and prosper, organizations requireinformation.

Similarly, in an exchange of thoughts with Littleton, Chambers (1957) advanced the conceptof general accounting theory by noting that accounting information is used by all organizationaltypes and that methods of developing such information is consistent across organizational bound-aries. Within this debate, we find an illustrative theorem in support of the following proposition:‘[i]n the case of continuing ventures, periodical accounting is a necessary condition or ratio-nal action’ (Chambers, 1957, p. 209). In Chambers’ theorem, actions represent decisions thatmust be made in order to conduct operations and this in turn should advance the accomplish-ment of organizational objectives. As organizations take actions, they change their environment;and therefore, must take new and different actions that require appropriate financial informationfor performance monitoring and decision-making purposes. Thus, Chambers (1957) suggeststhat as an organization transforms resources it must constantly adapt its actions to a changingenvironment.

Commenting on the work of the 1965–1966 Committee on basic accounting theory of theAmerican Accounting Association, Bedford (1967) concluded that within the domain of an ongo-ing organization the primary attribute of accounting is the development and communication ofinformation for decision-making purposes. Similarly, Wheeler (1970) points out that a varietyof stakeholders use accounting for decision-making purposes and encourages greater attentionto theory development in the area of social needs. Finally, Bedford and Ziegler (1975) iden-tify Littleton as a catalyst for the pursuit of a theory of accounting; and Imke (1966) pointsout that Littleton’s concept of theory includes a set of actions, objectives, and reasons that leadto the understanding of a business entity by interested parties inside and outside an organiza-tion.

This theoretical literature was available to the FASB when it established its conceptual frame-work, and those involved in the developmental process seem to have implicitly considered STinformation flow requirements as a relevant proposition. We draw our evidence to support thisdeduction from the financial accounting concepts that emanated from their deliberations. First, weidentified information as the primary objective of financial reporting (SFAC No. 1), and second,we established the decision usefulness of information in the corporate governance process (SFACNo. 2) as the characteristic that makes such information valuable. While the FASB’s concep-tual framework established information as the primary objective of financial reporting, it did notpromote a general theory of financial accounting.

2.2. Theory versus model

In a series of essays devoted to accounting theory, Devine covered a wide range of topicsrelated to accounting theory, principles, and practices. He defines theory ‘as a statement or series ofstatements which lead to testable predictions’ (Devine, 1985a, p. 2). Similarly, Hersey, Blanchard,and Johns (1996) define theory in organizational behavior as something that explains why eventsoccur, or are necessary, and contrast a theory with a model, which they consider a grouping ofprinciples or rules learned and replicated. Babbie (1992, p. 55) defines theory in social researchas a ‘systematic explanation for the observed facts and laws that relate to a particular aspect oflife’ whereas a model is a construct that provides insight into how something works as opposed toexplaining why it works as it does. Likewise, in accounting, Watts and Zimmerman (1986) consider


a theory to include both assumptions and hypotheses. Assumptions include necessary definitionsand the logic of the relationships between various theoretical components, and hypotheses arepredictions of unobserved phenomena relating to the discipline under study. Finally, in sociology,Schaefer (2005) defines a theory as

a set of statements that seeks to explain problems, actions, or behavior. An effective theorymay have both explanatory and predictive power. That is, it can help us see the relationshipsamong seemingly isolated phenomena as well as understand how one type of change in anenvironment leads to other changes (p. 8).

Schaefer’s definition incorporates the interdisciplinary positions of Devine, Hersey and Blan-chard, Babbie, and Watts and Zimmerman, which, in turn is supported by Shields (1997) whofound that most managerial accounting studies use the major social sciences (economics, psy-chology, and sociology) for theoretical underpinning. Consequently, Schaefer’s definition is usedin the assessment of financial accounting research and for the investigation of the usefulness ofST as an integrative model. To provide a ST perspective, the following section reviews essentialelements of this dynamic theory.

2.3. Systems Theory

In a comprehensive review of ST perspectives, such as general system theory, living systemtheory, and critical systems thinking, Jackson (2000) discusses the relative attributes of availablealternatives. These perspectives have a common foundation and this paper uses the term SystemsTheory for purposes of presentation and discussion.

Barnard (1938) first classified organizations as systems and identified a need for organiza-tions to interact with their environment in order to coordinate their various components andactivities. Consistent with Barnard, Bertalanffy advanced general system theory in a series ofarticles in which he argued that general system theory is independent of the constructs associ-ated with other disciplines and is applicable to physical, biological, and sociological entities,indeed, to ‘phenomena of any kind’ (von Bertalanffy, 1950, p. 304). As applied to organi-zations, general system theory focuses on the entire organization and considers the primarysystem objective to be sustainability of existence. A system attempts to accomplish this throughadaptation brought about by constant interaction with its environment. Subsequent to Berta-lanffy’s work, Wiener (1950) established the need for a feedback loop in order for systemsto acquire information relating to either the environment or an organization’s transformationprocess. Such information is then used to change strategic direction or modify internal pro-cesses. Boulding (1956) extended the systems concept through the identification of eight levelsthat he suggested could be used to evaluate system maturity: frameworks (atoms/genes), clock-works (solar system), cybernetic (thermostat), self-maintaining (cell), genetic–societal (plant),animal (brain/learning), human (sentient/language), social–cultural (family/organizations), andtranscendental (unknowable/god). Interestingly, humans are considered individual systems andorganizations are social systems populated by groups of people with different skill sets. Inthis schema, humans and organizations represent the highest knowable levels of system matu-rity.

Ackoff (1971) refined ST by identifying four system classifications based on both the behav-ior and the outcomes realized by a system. The first two classifications are state-maintaining(thermostat) and goal-seeking (automatic pilot) in which outcomes are fixed. The only differenti-ating aspect is that state-maintaining systems have determined behaviors whereas the behavior of


goal-seeking systems is chosen. The next system is multi-goal seeking (i.e., computers) and hasvariable and chosen behaviors that result in variable and determined outcomes. Ackoff reserveshis highest classification for humans, whom he terms as purposeful, with adjustable and preferredbehavior that results in variable and chosen outcomes. Organizations are defined as collections ofhumans striving for a common purpose with at least one subsystem that has a control orientationthat provides information for learning and adaptive purposes.

2.4. Criticisms of Systems Theory

Thayer (1972) criticizes ST as promoting hierarchy to a point of impersonalization amongoperating subsystems. He also posits that the requirement that systems grow to avert entropyresults in huge organizations that eventually work at odds with the environment, thereby resultingin destructive activities. Devine (1985b) considers general system theory too general for pur-poses of developing accounting standards. He considered ST’s applicability to understanding therole of accounting in organizations and concluded that using an open or closed classificationwas not useful in accounting discussions. However, the argument was focused on organizationalscope, structure, and political attributes rather than the role accounting plays in the develop-ment and presentation of information to decision makers striving to sustain operating activities.In a summary of system theory criticisms, Dubrovsky (2004) points out that ST is unable toestablish principals applicable to all systems and cannot be studied from a holistic viewpoint,rather, components must be investigated. Finally, systems being intangible confound researchersfor they find it difficult to discern cause and effect, and, subsystem relationships in changingenvironments.

2.5. Organizations as systems

Barnard (1938) considers organizations to be systems consisting of a number of interrelatedsubsystems that pursue a shared mission and strategic plan. As can be seen in Fig. 1, organi-zational systems are composed of four distinct functions critical to organization sustainability.Inputs consist of resources, such as people, material, equipment, money, and information, used toconstruct and develop system operations. The transformation process is the heart of an organiza-tion. Here, value is added by converting inputs into a product or service useful to society. Outputsrepresent the consumption of goods and services. Finally, from outside and inside a system, mon-itoring mechanisms obtain information critical to understanding how it is performing in terms ofefficiency of operations and effectiveness of social interaction.

Often the ST discourse does not acknowledge that each system affects their environment asthey transform, which in turn causes the environment to change, which may then require a systemto consider additional adaptive choices (Morgan & Smircich, 1980). This interdependency ofsystem and environment is a key component of chaos theory (Gleik, 1987), within which theidea of sensitive dependence on initial conditions is commonly illustrated through the metaphorof the ‘butterfly effect’. Morgan and Smircich (1980) encourage research that incorporates anunderstanding of organizational and environmental cause and effect as a two way street.

Supporting Barnard’s concept, Miller (1972), advanced living system theory as a refinementof its general Systems Theory counterpart. He proposed that:

[a]ny organization, no matter what its function in the society, must maintain itself as asystem. It must perform its specialized activities, such as production and output of a given


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

sort of matter-energy or information product or service. And it must coordinate its activitieswith other components of the suprasystem [organization] (p. 8).

Miller (1972) further points out that most organizational research is conducted at the sub-system level where it is easier to measure and test data. Jackson (2003) highlights subsystemand subsystem relationships as keys to the successful conduct of the transformation process. Forexample, in a biological setting, a human is composed of subsystems (digestive, autonomic ner-vous, circulatory) all of which must work in unison for a human to grow and survive. Likewise,Jackson (2000) explains that an organizational system is composed of subsystems (managerial,procurement, production, marketing, accounting) which must be coordinated through planning,organizational structure, and applied leadership. While there is no single best way to go aboutthis process, information flows that support communication and learning across organizationalsubsystems are key to sustainability.

Ulrich (1983) suggests that, in social systems (organizations), social groups (subsystems)must be coordinated in a way that results in purposeful action as each subsystem contributesto the transformation process. At the same time, subsystems must adapt to both internal andexternal environmental agitation. Duncan (1972) adds that a system must be able to repair itselfin a way that maintains operational order through the employment of a decider subsystem thatmonitors and coordinates the activities of each system component. In organizations, the decidersubsystem is executive management, and this group accomplishes its system sustaining functionthrough the development of purposeful goals and values. Within an organization, the accounting


subsystem supplies decision-useful information to the decider subsystem. In addition, accountinginformation provides an important source of institutional memory useful to system membersresponsible for planning and control (Cooper, Hayes, & Wolf, 1981).

Since humans are open systems (i.e., they interact with the environment), organizations com-posed of humans are open, and, therefore, must overcome the tendency of systems to disintegrateover time. To arrest entropy, an organization must adapt to changes in its environment; how-ever, as Ackoff (1970) points out, most organizations are change resistant. The willingness tochange requires learning based on information garnered from both internal and external environ-ments (Barnard, 1938; Gharajedaghi & Ackoff, 1984; Miller, 1972; von Bertalanffy, 1969), andas Boland (1986, 2001) points out, designing information flows to meet subsystem user needs isan important system sustaining function.

Accounting plays a role in the provision of system critical information. Financial accountingprovides information useful to those who supply certain inputs, bankers, investors, suppliers,whereas managerial accounting provides information useful to managers when selecting materi-als and equipment for operational needs. In addition, accounting information provides feedbackto those responsible for improving the efficiency of the transformation process. Thus, accountinginformation is critical to the ability of a system to continuously repair and re-energize itself (Mason& Swanson, 1979). Indeed, Cooper et al. (1981) conclude that accounting subsystems produceinformation that provides cohesiveness between accounting and other system units thereby pro-moting operational sustainability. Further, Napier (2006) found that, ‘[a]ccounting has changed, ischanging, and is likely to change in the future’ (p. 1). Napier’s insight was gleaned from a reviewof articles appearing in Accounting, Organizations and Society for the period 1979–2005, andhis conclusion is consistent with ST; as systems adapt to environmental pressures, the accountingsubsystem must also adapt to meet overall system needs.

Most accounting research focuses on how accounting information impacts on organizationalsubsystems. As Morgan and Smircich (1980) point out, much of this research is quantitativeand lacks a contextual application. Morgan and Smircich (1980, p. 496) suggest that ‘systemicwisdom lies in an awareness that relationships change in concert and cannot be reduced to a setof determinate laws and propositions, as positivist epistemology would have it’.

In order to ascertain how accounting research relates to ST, theories explored in doctoraldissertations are analyzed. The research design and methods utilized to develop this aspect of thestudy are discussed in the next section.

3. Research design and discussion

3.1. Research design

To conduct this study, we analyzed accounting dissertations. We selected accounting disserta-tions because a base theory is normally explicitly stated whereas theories in published journals areseldom stated and require discernment. Second, dissertations are developed under the watchfuleye of doctoral faculty who are theory experts and, in this sense dissertations are comparable toreferred journal studies. To populate the sample, we searched the UMI dissertation database using‘accounting’ and ‘2001’ as search terms. We chose the year at random, from 2000 to 2003, and weidentified 50 dissertations. These dissertations were reviewed and 20 were not useable becausethey used accounting in the title but focused on other disciplines where accounting was used inthe title as a synonym for ‘to give an explanation’ or for ‘reasons, or causes, or motives’. Theremaining 30 dissertations related to the accounting profession and were included in this study.


We reviewed the relevant studies to determine the base theory under examination. If a theory wasnot explicitly set forth, one was attributed based on the material presented in the literature reviewand hypothesis development.

3.2. Discussion

Results of the dissertation review are set forth in Table 1 and show that 24 of the dissertationsindicated the theory studied, whereas 6 did not. Of those that did not clearly set forth a theory itwas possible to deduce a theory in five cases. Only one study was not classifiable as to theory,as the stated purpose of the dissertation was to identify a set of spreadsheet competencies neededin entry level accounting positions and was data gathering and reporting in nature rather thanhypothesis testing based on a theoretical model. In addition, 11 dissertations investigated morethan 1 theory with 9 associated with a traditional dissertation format and 2 that investigated 2separate thesis topics.

In terms of academic discipline, Table 2 shows that a base theory was drawn from the financeor economics disciplines in 16 cases compared to 8 from psychology and 3 from sociology. Inonly two studies was the theory under consideration directly related to the accounting discipline,and the Cho study was not singularly focused as it also investigated the finance-based efficientmarket hypothesis. While positivist accounting theory is listed as directly related to the accountingdiscipline the basic tenets of this theory are drawn from economics. In the classification process,when more than one base theory was indicated, the study was categorized by discipline basedon the prominent theory examined in a study. This only made a difference in one study thatinvestigated both positivist accounting theory and the efficient market hypothesis. The followingsubsections summarize the nature of the research conducted considering the specific theory underexamination.

3.2.1. Economics and finance3.2.1.1. Efficient market hypothesis (EMH). Seven dissertations examined Fama’s (1970) effi-cient market hypothesis which posits that capital markets exist to provide as a way to allocatescarce financial resources (AAA, 1977; Fama, 1970). In a study of how this process works inthe United States, Fama (1970, p. 383) concluded that ‘[a] market in which prices always “fullyreflect” available information is called “efficient”’, and therefore, it is not possible to generateabnormal returns in the marketplace simply by making use of available information. Within anefficient market, Fama (1970, p. 383) established three types of market efficiency, which he calledthe weak form (historical information), the semi-strong form (recently released information), andthe strong form (monopolistic or insider information).

Information is the centerpiece of the efficient market hypothesis (Fama, 1970) and for a marketto be efficient, market participants must have access to relevant and reliable information, whichwhen received, will ‘result in a prompt transition to a new equilibrium [price]’ (AAA, 1977,p. 19). For information to be relevant and reliable in terms of decision usefulness, it must beaccurate, understandable, and timely. In fact, the importance of relevant and reliable informationreceived considerable attention in the literature (AAA, 1977; AICPA, 1970, 1973) immediatelyfollowing the introduction of Fama’s (1970) efficient market hypothesis. This concept, investi-gated by Ball and Brown (1968) who initiated a stream of research on the value relevance ofearnings when they suggested that accounting earnings are important to investment decisions,in turn highlights a need for uniform accounting practices across both industry and nationalborders.


Table 1Theories examined in doctoral dissertations

Author Institution Theory explored Implied or stated

1 Basile New York U Learning theory and attribution theory Stated2 Bush Utah State U No clear theory set forth N/A3 Chen U of South Dakota Cognitive theory Stated

4 Cho SUNY at Buffalo Positive accounting theory StatedEfficient market hypothesis

5 Everett U of Calgary Social process theory Stated

6 Froman Colorado State U Cognitive theory ImpliedExpectancy theory Stated

7 A.Y. Huang City U of NY Efficient market hypothesis and agency theory Stated

8 S.Y. Huang Nova Southeastern Organizational commitment StatedJob involvement theory Stated

9 Hunt Southern Methodist Positive accounting theory Stated10 Jackson Kansas State U Human capital theory Stated11 Jansen Indiana U Valuation theory (DCF&RI) Stated12 Kim Temple U CAPM and arbitrage pricing theory Stated13 Kozberga New York U Efficient market hypothesis Implied14 Kraft U of Chicago Efficient market hypothesis Stated15 Li Rutgers U Efficient market hypothesis Implied16 Manassian U of Calgary Critical theory (sociology) Stated17 Mason U of Oklahoma Valuation model (RI&DCF) Stated18 Mortimer Florida Atlantic U Agency theory Stated19 Myring Kent State U Efficient market hypothesis Implied20 Richmond Virginia Polytechnic Cognitive moral development theory Stated

21 Rowea U of Pittsburg Social categorization theory StatedSocial psychological theory Stated

22 Sauceda-Castillo Texas A&M Learning theory StatedCulture theory Stated

23 Stoltzfus Virginia Valuation theory (DCF) StatedCommonwealth Contingent claims theory Stated

24 Venugopalan U of Minnesota Efficient market hypothesis Implied

25 Weiss Wisconsin-Madison Economic consequences StatedValuation theory Stated

26 Woodland Missouri-Columbia Agency theory Implied27 Wright Nova Southeastern Belief updating theory Stated

28 Xu South Carolina Attribution theory StatedAdaptor-innovator theory Stated

29 Yaekura Illinois-Urbana Valuation theory Stated30 Zeng Queen’s U Valuation theory Stated

a Two thesis type papers rather than one complete dissertation.

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


Table 2Theories used by academic discipline

Discipline Number of dissertations

Accounting 2Economics/finance 16Psychology 8Sociology 3No theory 1

Total 30

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

tional regimes (Li, 2001); the impact of unexpected earnings considering different internationalaccounting standards (Myring, 2001); and the impact of conservative and liberal accountingalternatives (Venugopalan, 2001).

3.2.1.2. Capital asset pricing model (CAPM) and arbitrage pricing theory. The CAPM modelis based on the theory advanced by Sharpe (1964) which presumes that greater investment riskwill result in higher expected returns from investors. This model uses systematic (market risk)and unsystematic (security specific) risk to assess portfolio risk levels and assumes that only sys-tematic risk is compensated through market activity because unsystematic risk can be diversifiedaway.

In addition, arbitrage pricing theory (APT) includes considerations inherent in CAPM. APTassumes a linear return model that uses individual security returns, the deviation of individualsecurity returns from the market, the sensitivity of the individual security’s return to the marketdeviation, and random factors, which predicts an expected return on an arbitrage portfolio is zerobecause there is no risk and no investment (Ross, 1976). Kim (2001) used CAPM as a basis for hisresearch on the impact of market, state, and governmental accounting information on municipalbond returns.

3.2.1.3. Valuation models. Six dissertations used valuation models as a basis for research. Jansen(2001), Mason (2001), Weiss (2001), and Zeng (2001) used the Feltham and Ohlson (1995) modelwhich calculates a market value for a firm based on defined book value (net operating plus netfinancial assets) plus the present value of expected above normal earnings (abnormal earnings) inorder to assess value relevance of accounting information. Among these studies, Jansen (2001)investigated the impact of research and development and property and equipment on residualincome. Mason explored accounting conservatism’s impact on cash flow and accruals. Weissexamined how re-insurance accounting choices effect value. Zeng investigated the tax planningimpact of derivative instruments on firm value, and Yaekura (2001) compares the usefulness ofU.S. and Japanese accounting information to develop firm value. In addition, Stoltzfus (2001)used a model based on Merten (1974) and Reiter (1992) to assess the value relevance of jointventure equity versus how bond risk premiums are influenced by the equity and the consoli-dation accounting methods. He also employed the Black–Scholes options pricing model in thisresearch, whereas Yaekura employed accounting valuation models (Residual Income, Capitaliza-tion, and Combination) to investigate whether securities are more appropriately valued using U.S.accounting data or data in other worldwide accounting systems.


Valuation models normally employ a discounted cash flow (DCF) technique that traces itsorigins to Williams (1938). This model, based on a time value of money concept, assumes cashtoday is more valuable than cash in the future, assuming positive interest rates that incorporatea real return and a risk premium. This concept was incorporated into a variety of valuationtechniques, ranging from capital budgeting to the Gordon dividend growth model (Gordon,1959).

3.2.1.4. Human capital theory. Jackson’s (2001) theoretical foundation is human capital theory,which is grounded in the work of Adam Smith, and was modernized by Becker (1964). Thistheory posits that productivity can be enhanced by education and training and that an individualwill make rational decisions to maximize lifetime earnings; therefore, a causal relationship existsbetween education and training and worker productivity. Indeed, this theory posits that work-ers will invest in training and education up to the point where marginal returns equal marginalcosts, and has been a primary driving force in U.S. economic policy since the 1960s. Jackson(2001) employs this theory to investigate the impact of the 150-h requirement on the accountingprofession.

3.2.1.5. Agency theory. A.Y. Huang (2001), Mortimer (2001), and Woodland (2001) employedagency theory as a basis for their investigations. Building on a book by Berle and Means (1932),the thesis being that owners of corporations are not in control of them, Jensen and Meckling (1976)started a steam of research exploring how decisions by agents, assumed to be maximizing personalutility to the detriment of owners, impact on the value of a firm. In this work, they advance a theoryof ownership structure of the firm. Agency theory centers on the principal/agent relationship andaddresses how differing information is used in a contractual relationship to affect an ongoingrelationship. Obviously, a principal seeks an agent that will act in the principal’s best interest.However, an agent may take undetectable action in his/her own self-interest to the detriment ofthe principal (moral hazard), or an agent may possess information that a principal does not, anda principal cannot be certain that an agent will make the most appropriate decision possible.In other words, agents are inclined to act in a self-interested manner, and there is an ongoingtension between owners and professional managers. Mortimer (2001) investigates the impact ofCEO departure on accounting information, and Woodland (2001) investigates the informationusefulness of tracking stock disclosures.

3.2.1.6. Economic consequences theory. Weiss (2001) employed economic consequences theoryto a second aspect of her study relating to reinsurance accounting as changed by SFAS No. 113.Under this theory, managers are expected to respond to environmental changes by selectingand implementing other available risk management options or by developing and employingalternative risk management tools.

3.2.1.7. Relationship to systems theory. Financial information affects the financing, investing,and operating areas of organizational systems. EMH, CAPM, and valuation theories are primar-ily concerned with how markets react to financial information and how such reaction affects afirm’s required return and related cost of capital. This, of course, influences an organization’sability to gather financial resources at favorable prices. Likewise, to identify assets capable ofperpetuating organizational performance and longevity, in valuation models, required returnsare an important ingredient in the asset selection process. Thus, financial information is a sys-tem output that affects the environment, which in turn influences the input gathering process.


Human capital theory explores how systems value learning which is required for growth andadaptation purposes, whereas the agency and economic consequences theories investigate howmanagers use information for decision purposes to the advantage of organizational sustainabil-ity.

3.2.2. Psychology3.2.2.1. Learning theory and culture theory. Learning theory is composed of behaviorism, cog-nitivism, and constructivism. Basile (2001) and Chen (2001) consider two of the theoreticalbranches, behaviorism and cognitivism, where behaviorism focuses on how learning changesbehavior and cognitivism attempts to identify thought processes that lead to a change in behavior.Constructionism assumes that people develop a unique perspective of the world and focuses pri-marily on problem solving in a dynamic environment. In four studies involving learning theory(Basile, 2001; Chen, 2001; Froman, 2001; Sauceda-Castillo, 2001) the Kolb, Rubin, and McIntyre(1979) learning style inventory, was the centerpiece of a study of an aspect of learning underconsideration to American accounting students (Basile, 2001), Taiwanese accounting students(Chen, 2001), first-course accounting students (Froman, 2001) and students with multi-culturalbackgrounds (Sauceda-Castillo, 2001).

In addition to learning, Sauceda-Castillo’s (2001) study included an acculturation componentbased on culture theory. This theory examines how people from different cultural settings processsimilar information, and incorporates Hofstede’s (1991) four dimensions of cultural difference: (1)large versus small power distance, (2) individualism versus collectivism, (3) masculinity versusfemininity, and (4) uncertainty avoidance versus uncertainty acceptance.

3.2.2.2. Expectancy theory. An additional aspect of Froman’s (2001) study was expectancy the-ory developed by Vroom (1964). Vroom’s theory of motivation attempts to explain why individualsmake choices among behavioral alternatives within the framework in self-interest. Its centralpremise is that individuals in an organization will pursue different sets of goals and be motivatedto put forth a maximum effort on behalf of an organization if they think positive performanceattracts rewards, the reward will satisfy a personal need, and they can realize success.

3.2.2.3. Organizational commitment and job involvement theory. S.Y. Huang (2001) used boththe organizational commitment model and job involvement theory to examine job stability atpublic accounting firms. This research employed a model developed by Mowday, Steers, andPorter (1979) which assesses both attitudinal and behavioral aspects of organizational commitmentusing three criteria: (1) acceptance of an organization’s mission, (2) an ability and willingnessto work hard to help an organization achieve its goals, and (3) a desire to remain affiliated withan organization. Similarly, job involvement theory attempts to identify the psychological aspectsof a job that match a worker’s specific needs. In this portion of the research, Kanungo’s (1982)10-question job involvement questionnaire was employed to gather information appropriate forhypothesis testing.

3.2.2.4. Attribution theory. Both Basile (2001) and Xu (2001) used attribution theory as thefoundation for their research. Attribution theory, first advanced by Rotter (1966), posits thathuman behavior divides into two groups based on a personality trait termed locus of control.Under Rotter’s schema, locus of control classifies individuals based on their view of how out-comes resulting from their actions are associated with either their behavior or an outside agent.


Using this trait as a separation criterion, individuals are either internals or externals. Inter-nals have a sense of self-determination, feeling that their personal competency set (i.e., skills,education, or experience) is primarily responsible for performance outcomes, whereas exter-nals believe that outside factors, such as fate, luck, or divine intervention, are primary factorsdriving performance. Basile (2001) performed his study on internet-based instructional technol-ogy, whereas Xu (2001) investigated how accounting manager personality affects performanceevaluations.

3.2.2.5. Cognitive moral development theory. Richmond (2001) used cognitive moral develop-ment theory to explore ethical reasoning among college students. This theory is grounded byKohlberg’s (1969) six stage model, which assumes that at birth humans do not have morals,ethics, or honesty, and that cognitive moral reasoning becomes increasingly complex as indi-viduals mature and gain experience and education. Within this framework, personal values mustground ethical reasoning, must involve issues between self and others, and must consider what isright, rather than personal preferences, in terms of liking or desire.

3.2.2.6. Belief updating theory. Wright (2001) employed ‘belief updating’ theory to examinehow recruiters, professors, and students perceived seven qualities important to success in theaccounting profession. According to this theory, developed by Lund (1925), people are persuadedby the sequence in which information is introduced. Specifically, earlier information has primacyover information that follows. Thus, the order of presentation will influence how a user interpretsinformation.

3.2.2.7. Relationship to systems theory. Since organizational systems are a collection of individu-als, understanding how motivational stimuli influenced an employee’s personality and capabilityset is important for insuring full support of an organization’s goals. Psychology based theo-ries primarily explain how systems react to environmental stimuli, learn, and grow. This is theprimary focus of both learning and culture theory. Learning theory explains how individualsprocess new information and how behavior changes because of a learning event. Likewise, cul-ture theory explains how individuals from different cultures process information in a learningenvironment. Expectancy theory explains how rewards can enhance individual performance. Sim-ilarly, organizational commitment and job involvement theory predict how the work environmentinfluences employee productivity and longevity, which affects the value-added component of Sys-tems Theory. Attribution theory explains how personality affects the response to environmentalstimuli. Cognitive moral development theory provides a basis for assessing the underpinningsof a workforce, which, if not ethically based, can destroy an organization (e.g., Enron, ArthurAnderson).

Since all systems are entropic (i.e., tending toward disorder), the use of information to enhancelearning is important to an adaptive process that will promote negative entropy, thereby perpetu-ating existence. As such, theories emanating from psychology represent sub-theories attemptingto explain how systems (people and organizations) learn in order to adapt, perform, grow, andsurvive.

3.2.3. Sociology3.2.3.1. Critical theory. Manassian (2001) uses critical theory to examine communicative aspectsof international accounting literature. This theory evolved from the Institute of Social Research atthe University of Frankfort in the 1960s and has an interdisciplinary scope. While this theory is not


precisely stated, it encourages critical thinking in a way that challenges traditional assumptionsand attempts to find new explanations for existing environmental phenomenon, thereby exposinginaccurate reporting, insincerity, and lack of clarity and representational faithfulness in accountingcommunications.

3.2.3.2. Social process theory. Everett’s (2001) research explores social process theory devel-oped by Harvey (1996), in which the social world is ‘comprised of six basic elements or“social moments”: power, discourse/language, the imaginary (behavior/values/desires), institu-tions/rituals, material practices, and social relations’ (Everett, 2001, p. 76). Everett uses this modelto investigate accounting and auditing practices within the Canadian national park system.

3.2.3.3. Social categorization and social psychological theory. Rowe (2001), in two separatestudies, first explores the impact of horizontal versus vertical accounting operating and controlsystems on cooperation among departmental managers using social categorization theory. In asecond study, Rowe examines the ability of managers to predict how vertical versus horizontalinterdepartmental cooperation among organizational participants using social psychological the-ory. Social categorization theory explains why people affiliate with groups and how membersof different groups interact. Social psychological theory deals with the ability of managers topredict how members of a group think, feel, and behave when they encounter different workplaceapproaches or managerial operating styles, whether such influence is actual or imagined.

3.2.3.4. Relationship to systems theory. Theories from the sociology discipline explain howgroups interact, adapt, or attempt to change some aspect of their environment. Because opensystems must be environment sensing if they are to grow in a way that negates entropy, theories inthis area provide insight into this aspect of system conduct. For example, critical theory promoteschallenging traditional assumptions in a manner that will avert group thinking in a way thatcomplements an organizational adaptation process. Social categorization and psychological theoryexplain group affiliation and the prediction of cultural response to workplace change which impactsthe value added process. Similarly, social process theory explores how systems interact with theirenvironment in meaningful ways in order to adapt and survive.

3.2.4. AccountingCho (2001) and Hunt (2001) each conduct studies based on positive accounting theory. This

theory, drawn from economics, predicts organizational behavior in terms of both individual workercontracts with a firm and the impact of governmental regulation (Watts & Zimmerman, 1986).Positive in economics means the exploration of why things are done as compared to normativewhich is concerned with what ought to be done. Thus, this theory explains organizational action interms of the utility maximization of individuals as embodied in corporate decisions. Cho (2001)explored stock market reactions to changes in GAAP related to accounting for income taxes, andHunt (2001) investigated accounting choices of subsidiary firms in multi-firm organizations. Aswith theories in economics, psychology, and sociology, positive accounting theory focuses onexplaining how systems react to changes in the accounting environment.

4. Conclusions

This research represents a seminal effort to identify theories used in accounting dissertationsand to relate them to ST. It is found that theories used in accounting research are borrowed from


finance, economics, psychology, and sociology, and such research attempts to explain why, orhow, accounting information is important to a particular aspect of an organization’s transformationprocess. This finding is consistent with a study of management accounting research that concludesthat a unified management accounting base theory has not been identified, and that this branchof accounting draws from the economic, psychology, and sociology disciplines for theoreticalguidance in the conduct of empirical research (Shields, 1997).

The FASB’s general framework highlights decision-useful information as the primary objectiveof the accounting discipline. Likewise, information is a critical component of ST. Specifically therequirement that open systems constantly monitor changing internal and external environmentsin ways that promote effective and efficient value added activity through adaptation that main-tains harmony with the operating environment. Further, the idea of sustainability relates to theentropy concept in ST, as information, with accounting being one significant information source,is important to decision making that negates the tendency of systems to deteriorate over time.

Because systems are complex and multi-dimensional, accounting research is not conducted onan entire system. Rather, a subsystem approach is employed because it simplifies data gatheringand hypothesis testing. The ability to relate subsystem research to other intra-system componentswould be useful to organizational decision makers since, consistent with system thinking (Duncan,1972; Miller, 1972), the decider component of a system (senior management) needs to know howsubsystem effort contributes to overall system sustainability. However, any attempt at generalizingto the broader system should be contextual, rather than positivism causal, because subsysteminteractions are dynamic and ever changing (Morgan & Smircich, 1980). Indeed, ST seems capableof serving as a coalescent for subsystem research if, as suggested by Ulrich (1983), such researchis evaluated using a critical approach that allows for consideration of alternative beliefs andassumptions.

The literature review indicates that both accounting literature and accounting textbooks aredevoid of explicit ST discourse. Thus, accounting educators have an opportunity to identify STas the source of the transformation process set forth in accounting textbooks, and to utilize thisrich paradigm as a way of explaining why accounting is an important mechanism for supplyingorganizational decision makers with information that is both relevant and reliable. ST also providesaccounting educators with a useful way to incorporate an interdisciplinary aspect to classroomlearning by highlighting the value of accounting information to other organizational disciplines,such as marketing, management, operations, and finance. Doing so will promote discourse onhow accounting information contributes to firm coordination, welfare, and sustainability as calledfor by Morgan and Willmott (1993).

Finally, not all of the 2001 accounting dissertations clearly identify the base theory underinvestigation. Since a base theory is a critical component of the scientific method, thoseinvolved on dissertation committees will improve the quality of a research effort by requiringa clearly written base theory that supports the development of research questions and hypothe-ses.

As is the case with research studies, this research is not without limitations. First, there is muchST literature that we could not incorporate in our paper. The omission of worthy and insightfulviewpoints was necessary to keep the paper to a manageable length. Second, we employed account-ing dissertations from 2001 to identify theories used in research efforts. Future research might usearticles from referred journals for this purpose. Third, this paper focused on accounting researchand presented short summaries of theories used as a basis for research. Future efforts might morerigorously explore sub-theories in a way that provides opportunity for both the researcher and theproponents of different theories a voice in the ST debate.


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