UNIVERSITY OF PISA-SIENA-FLORENCE
Doctorate in Business Administration and Management
(XXVIII CYCLE)
Decision making and Neuroaccounting perspective:
An Eye-tracking investigation on
Accounting information disclosure
PhD CANDIDATE
Rachele Baldi
Department of Business and Law
University of Siena
SUPERVISOR
Prof. Roberto Di Pietra
Department of Business and Law
Table of content
Preface ...9
Introduction ...11
1. Motivation and objectives ...11
2. Background...13
3. Research questions and method...16
4. Contribution to the literature and further developments ...18
5. Structure of the thesis ...20
Chapter I ...23
Decision making process in accounting through a Behavioral perspective ...23
1. Premise ...23
2. Nature and objective of Behavioral Accounting research ...24
3. Interdisciplinary influences ...28
4. The origins and the historic pathway of the Behavioral research field ...32
5. Research methodology ...35
6. A particular research area: focusing on accounting information and decision making ...42
7. Concluding remarks...52
Chapter II...55
The brain mechanism under decision making process: from reflex theory to experimental economics ...55
1. Premise ...55
2. Brain mechanisms under behavior as physiological process: the development of reflex theory and its paradigms ...57
3. Beyond reflexiology to explain human behavior: Game Theory to set the stage for experimental economics...63
5. Models of decision making and the theory of choice from a neuroeconomics
perspective... 69
6. Definition and goals of Neuroeconomics ... 74
7. Applied methodologies ... 77
8. Concluding remarks ... 82
Chapter III... 83
Neuroaccounting as a research field within Beahavioral accounting ... 83
1. Premise... 83
2. Overview of the topic... 84
3. Accounting and Neuroscience ... 87
4. Social exchange and human behavior: the importance of recordkeeping... 91
5. Parallel structure between brain and accounting principles... 97
6. How the human brain is affected by accounting information... 100
7. Concluding remarks ... 102
Chapter IV... 105
Eye movements and cognitive process: the importance of visual attention ... 105
1. Premise... 105
2. Visual attention ... 106
3. Eye movements and visual cognition ... 109
4. Eye tracking methodologies... 112
5. Eye tracking application ... 115
6. Concluding remarks ... 119
Chapter V ... 121
Visualizing Financial Statement IFRS compliant: preliminary experiments adopting Eye Tracker methodologies ... 121
1. Premise... 121
2. Hypothesis development ... 122
3. Experimental design and methodology... 124
3.1 Eye Tracker... 124
3.2 Experimental design ... 125
3.4 Procedure...128
4. Data analysis and statistics ...129
5. Results ...131
6. Concluding remarks...139
Conclusion Limitation and further developments ...141
References ...147
9
Preface
When at the beginning of my Phd programme, my supervisor Professor Roberto Di Pietra propose me to conduct a research on neuroaccounting topic I accepted with enthusiasm although I knew it would be a challenge.
The more I was reading on the topic, the more I became convinced that Behavioral Accounting Research would need to explore new and innovative stream of research. The innovative capacity of this study is mainly represented by the potential of neuroaccounting approach.
The innovativeness of this approach consist in answering to the typical research questions of Behavioral Accounting Research with experimental procedure proper of neuroscience. It would be said that neuroaccounting topic could set the stage to a new paradigm of research in social science that it would be in between of positivist and interpretative view.
The appeal of the research results is interesting both for scholars that for practitioner. The contribution to the literature would be fruitful for Accounting Disclosure theory and the practical lapel would be an worthy tools for companies for their internal and external disclosure.
For the writing of this work it is my duty and pleasure to thank all the people that put an effort in order to make it complete.
First I would like to thank you my Supervisor Professor Roberto Di Pietra, who was my mentor in conducting this research.
I would like to thank you also the Department of Neurological and Behavioral Sciences of University of Siena, especially Alessandra Rufa and Pamela Federighi who works with me and Professor Di Pietra to design and submit the experiments to the participants, as well as to analysis and define the statistics of data obtained from the experimental procedure.
I am grateful to all the participants to the experiment, who have made their time available for the research.
The research has been settle during all of my three years of Phd program. It would be said that the research face four period different each others. The first phase regarded the study of the background, the methodology and the technical device, in which we develop the hypothesis and we design the whole experiment, included the
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selection of target. The second stage, more operational, of testing and submission the experiments. Into the third period we analyze the data obtained and we deduce the main results.
The fourth and more important phase of this research was the one in which we tried to expose the whole study in the academic context. I am really thankful with Professor Araceli Mora, that first revised my research during the visiting period I spent at the University of Valencia, Department of accounting, in order to complete and improve the background and the formulation of my research. I am also grateful to the opportunity that the international congresses in which I have presented the research gave to this work in terms of important feedback obtained. Thank to all the participant to my presentation at EUFIN 2015, hold in Paris in September 2015, at the EAA annual congress hold in Maastricht in May 2016 and at the Accounting and Regulation workshop hold in Siena in July 2016, and to all their interesting and fruitful comments given.
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Introduction
1. Motivation and objectives; 2. Background; 3. Research questions and method; 4. Contribution to the literature and further developments; 5. Structure of the thesis.
1.
Motivation and objectives
In 2011 the American Accounting Association (AAA) promoted a symposium on which to discuss the fact that accounting research was stagnant and lacking in significant innovation that introduces fresh ideas and insights into our scholarly discipline.
Basu (2012) on his comment titled 'How can accounting research become more innovative?' suggested to re-orient accounting research toward addressing fundamental accounting questions and to provide incentives for innovative leadership, rather than for passively following accounting standard-setters. He argued that accounting research should be much more accessible to practitioners, interested laymen and academic colleagues in other disciplines. Too often accounting research has little impact on accounting practice, and the divergence between accounting research and accounting practice has been growing over the last half century (Ball 2008; Basu 2009).
He continued stating that many accounting researchers believe that conceptual framework has resolved all fundamental accounting issues and that accounting researchers should help regulators fill in the technical detail to implement it. This routine made accounting academics blind in front of experiments and innovation in the major unsolved questions, that could provide new directions for research, new framework for teaching and practical implications.
In another comment titled 'Is accounting research stagnant?', Moser (2012) observed that researchers mostly use the same research methods and do not collaborate with researchers who employ different methods or with researchers outside of accounting, making accounting research not enough innovative with archival studies being most prevalent, and experimental studies much rare.
Trying to answer fundamental research questions from another point of view, implementing new methods with an interdisciplinary approach was the first aim of this study.
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The research has been focusing on neuroaccounting disciplines that are considered an evolution of Behavioral Accounting Research in which the observed output is not the choice or the decision made under given conditions, but rather how the
subjects respond to stimuli1. The focus will be on the decision making process itself
and the way in which the final choice comes out.
The main attempt would be to address our investigation into user perspective, when they making decisions looking accounting information through financial reports. It is believed that there is a visual profile of accounting that is mainly represented by accounting information disclosure, that could affect subsequent user behaviors. Reports (financial and non-financial) must meet users’ information needs in order to support their decision processes. Thus, accounting (and non-accounting) information is used as a basis for choice and action, so reports can be viewed not as the end of a process, but as grounds for consequent decisions/behaviors. In this perspective, the quality of decisions taken is strongly influenced by the quality of information disclosed, and the quality of information disclosed can in turn be evaluated by looking at its effects on decision makers’ behaviors.
Studying accounting decision making processes directly could be an useful tool to evaluate the utility for final users of accounting information disclosed into financial and non financial reports. The utility of accounting information could represent in other terms the value relevance of accounting data which are significant just if final users consider them important in order to undertake a decision.
The impact of this research could be noteworthy in order to understand the value relevance of accounting information disclosed in official reports and could find application in many areas of a company to assess and design the accounting data that needed to be disclosed. Financial and non financial reports are the main way to communicate the history and the state of the art of a firm both through internal and external channels. In every day routine many reports are exchanged between different functions of the same firm, to internal or external analyst, to major and minor investors and in any of this situation they must help in taking accounting decision. So, are they inform through the right data? The surest way to know is to directly analyze the decision-making process undertaken with existing reports, in order to assess if they are matching the knowledge need of final users (Catturi 1992;
13 1997; 2009; 2007).
The main idea is trying to explain decision maker behavior with brain stimuli coming from accounting statements, exploiting the significant interactions that have observed over the past 15 years between cognitive research, neuroscience and research on decision-making processes, basing this research on a cross-fertilization process (Birnberg & Shields 1984; Dickhaut et al. 2010; Dickhaut 2009; Innocenti
et al. 2010; Libby et al. 2002; Wedel & Pieters 2002)2.
2.
Background
It was just in the late 1960s that accountants began to approach behavioral accounting as an interesting potential research field.
In one of the first surveys on this topic, Hofstedt & Kinard (1970) stated that “BAR may be defined as the study of the behavior of accountants or the behavior of non-accountants as they are influenced by accounting functions and reports”. According to them, there are three perspectives from which to approach behavioral accounting:
1) the influence of accountants’ technical function on behavior;
2) the behavior of accountants;
3) the influence of accounting information on its users.
Over the years, the focus of BAR has been substantially shifting towards the third perspective, since the main domain of behavioral research is to study how individuals make decisions, interact with each other and, most importantly, influence other individuals, organizations, markets and society (Birnberg & Ganguly 2012).
Birnberg & Shields (1989) recognize that BAR clearly diverges from any other schools within accounting research, especially in the critical assumptions the researchers make, the methodologies they employ and their orientation to accounting issues, as they sum up the three perspectives from which this area can be studied. The authors identify five schools within BAR, grouping together papers which pursue a common research question (managerial control, accounting information processing, accounting information system design, auditing process
2
The expression cross-fertilization means the mutual exchange of ideas and concepts from different fields in order to have mutual benefit (See on the topic: Thompson Kleine 2000; Zott 2011; Breschi & Lissoni 2001; Huysman & Wulf 2004; Vertovec 2006)
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research, organizational sociology) to highlight the broad spectrum of topics that could be included in this field. Moreover, they point out a great variety of disciplines that have contributed to the growth of BAR, such as economics, political science, organization theory, psychology and sociology.
More recently, Birnberg (2011) noted that while BAR was mainly stimulated by behavioral decision-making and cognitive psychology literature up to the late 1980s, the role of behavioral research later grew in other social science disciplines, creating new potential for collaboration to share existing knowledge and generate new understanding.
Cognitive science has progressively linked various disciplines such as philosophy, law, psychology, art, neuroscience and economics. This sort of interaction between economics, cognitive science and neurobiology gave rise to a new interdisciplinary research field called neuroeconomics.
Neuroeconomics lay its foundation on neuroscience and how during the times their scientists attempts to explain the existing connection between brain and behavior. To understand how the relationship between brain and behavior has been developing through the years it is needed to start from the classical approach.
Descartes (1664) proposed that all observable human behaviors could be divided in two categories, the simple and the complex. Simple behavior were those in which a given sensation always produced the same behavioral response. Complex behavior in contrast were those in which the linkage between sensation and action was unpredictable and subject to the alterations of volition.
Descartes's dualism was thus the critical conceptual advance that permitted psychological studies of behavior to begin.
In order to understand the economic behavior of humans it is necessary first to understand the mechanisms by which those behaviors were produced. The main limitations of classical dualism and physiological monism both stem from the inability of determinate mathematical tools to describe behavior in all its complexity.
It was in the last half century that Economics began helping, through the game theory, in understanding both determinate and indeterminate behaviors. Economics was recognized, from both neuroscience and psychology, a biological science studying how human choose being these choices inescapably biological processes. Neuroeconomics benefits from the application of models grounded in neurobiology
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to typical cognitive science methodologies. The new research approach introduced by neuroeconomics carries out behavioral research by studying decision-making processes in a different way. The methodologies involved are laboratory experiments, examination of naturally occurring data, verbal protocols and theoretical models, which entail both studying participants’ cognitive processes in controlled laboratory experiments and developing ways to test theories that could generate a map of human decision-making (Birnberg & Ganguly 2012).
Neuroeconomics methodologies may have progressed more slowly in BAR than in other behavioral research fields, but from their interaction emerged a new horizon so called neuroaccounting that has its basis on a borderline literature research field (Birnberg & Ganguly 2012; Dickhaut et al. 2010; Dickhaut 2009).
Neuroaccounting is a still-under-investigated research area combining elements of behavioral accounting, accounting and neuroeconomics. It is oriented toward better understand of the decision-making process, particularly the role of accounting numbers and individual interpretation of accounting reports investigated through theoretical models from cognitive and behavioral neurosciences. The focus is on the relationship that may be found between decision-making processes in accounting and how the brain produces behaviors in these processes, highlighting the main factors of influence.
Few studies in the existing literature have approached BAR using new methods suggested by the neuroaccounting perspective (Basu & Waymire 2006; Dickhaut 2009; Dickhaut et al. 2010; Basu et al. 2009.) They tried to observe modern accounting from social and biological science perspective and to discuss links between neuroscience and accounting, providing a set of methods from neuroscience research that could be useful to BAR.
Researches in neuroaccounting could investigate in many different accounting topics coming from managerial accounting, financial accounting, auditing, accounting systems, trying to answer to basic and fundamental research questions implementing different methodologies that come from neuroscience and neuroeconomics background.
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3.
Research questions and method
Existing literature (Barth et al. 2008; Chen & Lin 2010; Daske & Gebhardt 2006; Horton et al. 2013; Soderstrom & Sun 2007) indicates that the main objective of accounting disclosure is to inform users about the preparation of reports (including accounting and non-accounting information).
Accounting disclosure could be represented the visual profile of accounting since it is the way in which accounting concepts and numbers are represented in order to be accessible and informative by all potential users. The shape in which accounting information are disclosed is highly influencing final users perception of the quality of those information.
BAR linked with neuroscience leads us to neuroaccounting methodologies, which suggest an investigation of how the visual profile of accounting and non-accounting information could affect visual attention and the subsequent decision-making processes.
Previous research in psychology and marketing indicates that attention is one of the most important factors for understanding the decision-making process, but as Birnberg & Shields (1984) underline, behavioral research in accounting has largely ignored those concepts, crucial though they are to demonstrating how accounting information is processed. Visual attention is determined by perceptual characteristics and individuals’ capacity to increase their knowledge through observation to further their objectives. So, attention drives individual preference and choice (Wedel & Pieters 2002).
The link that Wedel & Pieters (2002) make between preference and visual attention can also be applied to connect how accounting information disclosure affects users’ decision-making processes.
Our purpose is to exploit the previous concepts to test one of the main assumption of the disclosure theory, the superior quality of IFRS-compliant accounting information, implementing methodologies used in neuroscience.
A substantial amount of research has been conducted to investigate the superior quality of IFRS-compliant accounting information, testing for improvement in certain accounting quality proxies following the application of IFRS (Barth et al. 2008; Chen & Lin 2010). Other research makes use of available disclosure quality
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scores extracted from annual reports by accounting scholars to assess the quality of financial statements after IFRS adoption (Daske & Gebhardt 2006). Researchers have also investigated the impact that accounting quality has had on macroeconomic trends as a consequence of the mandatory introduction of IFRS by examining the connections between accounting disclosure quality and macroeconomic variables, such as efficiency of capital allocation, international capital mobility and cost of capital (see among others Botosan 1997, the review in Soderstrom & Sun 2007 and Horton et al. 2013).
However, the changes in accounting quality and the effects on macroeconomic variables observed in most studies could not be attributed solely or principally to the introduction of IFRS due to the presence of other complicating interacting factors (Chen & Lin 2010).
Our goal is to contribute to accounting disclosure literature by laying the foundation for investigation into IFRS disclosure from a different point of view.
Does IFRS Financial Statement provide higher accounting quality information to their users? Does exist a visual profile of accounting to measure visual attention during decision making process? Could be linked visual attention with accounting information disclosed into reports in IFRS Financial Statement? Could be used visual attention as a proxy to test higher IFRS accounting quality in terms of utility for their users?
In our preliminary studies, it has been implemented an “eye tracker methodology” to measure eye position and eye movements, since analysis of the gaze is possible in decision-making experiments, and rigorous gaze analysis methods have already been used to study human interaction in social behavior. What is more, the novelty of this methodology and the possibility to directly measure eye movements and fixations fits perfectly with our final purpose to investigate IFRS disclosure quality in terms of utility for final users.
Experiments in both neuro-scientific and cognitive research have already shown the positive relationship between saccadic eye movements and covert visual attention and how the former are generated voluntarily by visuospatial attention (i.e. Hoffman & Subramaniam 1995). Thus measuring eye movements as a proxy for visual attention may allow us to find evidence about what relevance users of IFRS financial statements effectively perceive during decision-making processes.
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neuroscience) that investigate brain waves or cerebral areas stimulated by decision processes.
Eye tracker methodology has not yet been applied in financial accounting disclosure studies like this, but it has had several interesting implementations in marketing, information technology, finance and game theory (Duchowski 2007, 2002; Innocenti et al. 2010; Rayner 1998; Wedel & Pieters 2002).
The eye-movement system is closely related to cognitive functions such as perception, attention and memory. This is not surprising since eye movements offer us the easiest and the most accurate way to extract information from our visual environment and, moreover, largely determine what information is selected for further processing. From a physiological point of view, eye movements serve to stabilize the image on the retina during head rotation or when images are in motion, or to shift the gaze to a new point of interest. The sequence of gaze shifts during visual exploration is considered an expression of several cognitive processes. Thus, the use of an eye-tracking experiment with specific and reproducible visual-spatial tasks and pre-defined visual-spatial and temporal variables may be of aid in investigating specific motor (trajectory, velocity, amplitude, accuracy, motor learning) and cognitive (fixation time and distribution, voluntary and reflexive saccades, micro saccades) processes.
The study of gaze seems an ideal model for researching the decision-making process in neuroeconomics settings as well as in neuroaccounting (Birnberg & Ganguly 2012; Birnberg & Shields 1984; Dickhaut 2009; Innocenti et al. 2010). In the light of implementations of eye tracking in other research fields to date, its utilization should help us to find preliminary evidence on the importance of the visual profile of financial accounting disclosure in our first pilot experiment. In our specific case the visual profile of accounting will be used as alternative method to prove the supposed superior quality in terms of utility for their users of IFRS-compliant information.
4.
Contribution to the literature and further developments
Through this preliminary study the aim is to contribute to the accounting literature using visual profile of accounting as a means to test the supposedly superior quality
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of IFRS accounting standards as perceived in terms of utility by users during a decision-making process. At the same time, the objective is to highlight the importance of the visual profile, which could be inherent to accounting information disclosed in reports, connecting it to the decision-making process through the trend of visual attention.
The main goal would be to highlight the importance of disclosure in financial accounting information from a new perspective.
During last years, it has been showed the importance of accounting disclosure for its transparency and the role in communicating useful information to final users. However, final users perspective has not yet been investigated directly. So far, studying decision making process, it is meant to analyze indirectly users perspective being unaware of what is the real user perception of the information quality. Researchers have been focusing just on final decision without studying the process through which this final decision was taken.
Previous literature proved that IFRS-compliant information is superior quality information, basing their quality measures on accounting proxies changes and effects on macroeconomic variables. The quality of accounting information perceived by their final users in terms of utility was never the object of a direct investigation.
Through this study the first objective is to shed light to the final users perspectives putting under investigation the decision-making process itself.
In order to do this in a reasoned direction, it is necessary the support of new methodology that will be able to examine the effective decision-making process step by step instead of the final decision taken.
The novelty of methodology applied is another strength of this study in financial accounting disclosure topic that could allow to asses directly the perception of IFRS-compliant disclosure in terms of utility of information provided.
The conduction of this study could open a great number of experimental researches in many field of accounting. The first step is to prove that a visual profile of accounting exists and that its perception could be measured. Next step would be to find a valuable and easy way to expand this kind of assessment from which could benefit academics and practitioners in order to find the most valuable way to disclosure accounting information to meet utility need of final users.
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ground in which to develop the first study on visual profile of accounting in order to observe of what final users perceive as more useful in looking official accounting reports.
5.
Structure of the thesis
The reminder of the thesis is structured as follow:
The first chapter will analyze the decision making process in accounting through a Behavioral perspective. One of the most important feature of this study is the interdisciplinary approach taken, that is crucial to stress from the beginning. So that, the main objective of the first chapter it will be to highlight the nature and the objective of Behavioral Accounting, the research area from which this thesis develops, underlying the social sciences that cooperate in this research field. Moreover this chapter will provide an overview on the origins and the historic pathway of the BAR field trying to shed light on the awareness of behavioral influences in accounting processes. The first chapter will make also an outline of the main areas of research in particular of the studies in information and decision making. The broad and different spectrum of researches that can be highlighted within BAR is connected to the broad range of research methodology that will be consider in the fifth paragraphs of first chapter.
The second chapter will process the decision making process under a different point of view. It will be analyze the brain mechanisms under decision making process from reflex theory laying its foundation into neuroscience and psychology till experimental economics and the new frontiers of neuroeconomics. The different sections of the chapter will try to run through again the historical attempts that tried to put into relation brain and behavior, and more specifically to discover how the brain could produce behaviors. It will go through the historical period from the birth of neuroscience till its connection with modern economic theory and the increasing awareness of its contribution to explain complex behaviors. It will be presented different kind of neuroscientific techniques often used in neuroeconomics that investigate brain waves, cerebral areas or visuospatial attention stimulated by decision making processes.
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research field within BAR which is trying to answer the same research questions implementing tools and device coming from neuroscience and neuroeconomics. The chapter explain the main features of this disciplines underlying the main connection between accounting and neuroscience. In the other sections will analyze the possible research fields. The different paragraphs will focus on the three main developed areas of research in neuroaccounting: the role of recordkeeping, the parallel structure between brain and accounting principle and how the human brain is affected by accounting information,.
The forth chapter will deal with the main feature about the methodology applied to carry out this research: the Eye tracker. It will be face up to the importance of eye movements in cognitive process and the way in which they could represent the real visual attention of users.
The last chapter will tackle the development of the hypothesis and the design of the experimental investigation that has been undertaken. The hypothesis to test have been resulted from accounting disclosure theory and the existing studies that have been conducted to demonstrate the superior quality of IFRS standards. In this last chapter will show the experiment that has been formulated, the design, the administration procedures and the main results collected. Particular emphasis will be given to the experimental methodology that was implemented to conduct the study.
The dissertation will be end with conclusive reflections, limitation and possible further developments.
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Chapter I
Decision making process in accounting through a
Behavioral perspective
1.Premise; 2. Nature and objective of Behavioral Accounting Research; 3. Interdisciplinary influences; 4. The origins and the historic pathway of the Behavioral research field; 5. Research methodology; 6. A particular research area: focusing on Accounting information and decision making; 7. Concluding remarks.
1.
Premise
The inception of one of the most influence study that review the research on the topic of BAR (below called BAR), state that ‘the last thing a fish would discover would be water as accountants have become aware of the behavioral structure within which they function’ (Hofstedt & Kinard 1970).
This sentence is quite representative of the recognition, occurred in the field of accounting, about the importance of people as actors in economic processes and the role that accounting plays in those processes. The effects the accounting process has upon individual and collective behavior, and how these effects can be altered by changes in the accounting process itself (Bruns & DeCoster 1969).
The accountants became involved and concerned with questions about what and how to measure and report, how these measuring tasks should be implemented, from whom is he creating the information, and why users will be concerned with the results of his effort, just few decades ago.
The information created by accounting processes must be useful for a lot of different kind of stakeholders and this imply to consider the impact of measuring and reporting activities on final decision making processes (Bruns & DeCoster 1969).
Behavioral accounting emphasizes the relevance of accounting information to decision making as well as the communication of this information on the individual and group behaviors. Accounting is assumed to be action oriented, than its purpose
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is to influence actions, or behaviors, directly through the informational content of the message conveyed and indirectly through the behavior of accountants. Because accounting is considered a behavioral process, behavioral accounting can be described as the application of behavioral science to accounting (Belkaoui 1989). This chapter will introduce the BAR, trying to understand the decision making process in accounting in a behavioral perspective.
Firstly it will be given an overview on what BAR is, the nature and the objective. In third section it will be examined the most important disciplines that have been influenced the research in Behavioral Accounting. Then, it will be briefly reviewed the historical pathway of this field of research and it will be introduced the methodology of research used. The last section, it will be concluded with an outline of the possible areas of research mainly studying the matter of accounting information and decision process.
2.
Nature and objective of Behavioral Accounting research
As Birnberg & Shields (1989) noted the term Behavioral Accounting first appeared in the literature in 1967 issue of the Journal of Accounting Research: Empirical Research in Accounting Selected Studies. Becker (1967), reviewing Cook’s paper (1967), concluded by defining himself out of the field of research of which Cook’s study was representative. Behavioral accounting as research field applied theories and methodologies from the behavioral sciences to examine the interface between accounting information and process human behavior.
Behavioral sciences, as Green (1973) highlight in his essay Behavioral science and accounting research, is a term apparently coined at the University of Chicago in the late 1940s by a group of faculty members who used that term because its neutrality made it acceptable to both social and biological scientists. The objective of Behavioral Science is to understand, explain and predict human behavior (Belkaoui 1989), so as Behavioral Accounting belongs to this kind of research field it is possible to say that it is related with accounting information and problems in order to explain and predict with human behavior in all possible accounting contexts. As highlighted in the AAA report in 1974, the scope of this sort of studies is to provide an understanding of the behavioral environment of accounting and provide
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tools to solve behavioral problems that occurs from the preparation and the use of
accounting information3.
Hofstedt & Kinard (1970) defined BAR as the study of the behavior of accountants or the behavior of non-accountants as they are influenced by accounting functions and reports. According to them, the three main perspectives which can be follow to study accounting in relation to a consequent behavior are:
1) the influence of the accountant’s technical functions on behavior;
2) the behavior of accountants;
3) the influence of accounting information on those receiving the information.
In the authors opinion and in line with their review of the state of art at that time despite the fact that all three of these areas of inquiry are worthy ones, the third one is the one that seems to be the most pursued by research efforts.
According to Birnberg & Shields (1989) BAR is a school within accounting research, but the particular agenda, assumptions and resulting research focus differentiate it from other active accounting research schools.
The peculiar features that make BAR different from the others schools of accounting research is the critical assumptions the researchers make, the methodologies they employ, and their orientation to accounting issues, but mostly the linkage with Behavioral Science that underlie this topics.
As other schools within Accounting research, Behavioral Accounting is observing accounting phenomenon. So that the variables to measure are chosen on the basis of research question or theory, the observations are properly collected and the audience of research findings can be made up of many different stakeholders (Birnberg & Shields 1989).
According to (Green 1973), Behavioral accounting deals with behavior of four groups of people: subjects whose behavior provide data for accounting reports, company accountants who process the data, public accountants and recipients of accounting reports.
The behavioral issues primarily come into play through the communication process, not through the data processing methods which are the more traditional accounting issues (Hofstedt & Kinard 1970).
The behavioral model focuses on the interface between the accounting information
3 See also the others previous report of American Accounting Association on the topics (AAA 1966; AAA 1971).
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system and the information recipient, on what may be called the communication process.
Since, currently accounting is a collection of rules about how to organize and display a complex set of stimuli, business events, the information contained within those stimuli is transmitted to whomever is interested in looking at the display (Becker 1967).
Accountants must make decisions about the design and operation of accounting information systems and in sending those accounting stimuli they can deliberately drawing their system so as to influence behavior. The simple realization that accounting figures are both a cause and effect of human behavior is, by itself relatively trivial.
Any continuing development of accounting principles must be based on a deeper understanding of the behavior of users of financial report (Hofstedt & Kinard 1970). Accounting communications are designed as the basis for behavior. The behavior of the recipient for accounting information and how variations in the information influence the behavior is this one of the domains of BAR.
The recipient of accounting information and reports is representative of all different kind of stakeholders that could have interest in accounting information and reports. Accountants must be aware of the complex network activity directly related with the psychological reactions of those who consume accounting outputs, so it is important to do not failure to recognize that accounting theory must be supported by behavior assumptions.
Due to the great number of stakeholders an accounting information could be directed, accountants must be also aware of the patterns of differences in the ways in which people from different cultures react to the accounting process that justify the cross cultural behavioral research in accounting in order to answer the question whether the findings of behavioral researchers in one culture can be transformed with or without modification for effective use in another (Burke 1981).
The differences in accounting cultures or more in general the fact that the origin of the accounting information could be different from the destination target it is one of the best obstacles to establish generalization about human behavior even if supported by empirical evidence collected in an impersonal way.
In this respect Behavioral science represents the purpose of confirming specific hypotheses by reference to observable changes in behavior and Behavioral
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accounting attempts, to correct traditional approaches to accounting theory that underemphasize prepare and user perceptions, attitudes, values and behaviors (AAA 1974).
Describing BAR in terms of event selected from observation, questions asked and what field may have influenced the research question imply to account the systematic observation of the phenomena either in laboratory field or computer simulation of behavior, to contest the archival data method on human behavior. As the next sections will subsequently process, Experimental Economics can be an example of Behavioral Accounting when it involves the systematic observation of particular aspects of human behavior rather than the study of market forces (Birnberg & Shields 1989). Through Experimental Economics it would be tested the acceptability of a new approach to better understanding accounting problems analyzing directly the decision making process subsequent, or concomitant, to the use of accounting information provided to the stakeholders through reports.
Before doing so, according to Birnberg (1973) in their comment on Green (1973), the basic goal of BAR is to establish a legitimate reason for the existence of behavioral research in accounting. The task of researchers that have been work on Behavioral accounting matters it was to adapt or develop the research tools necessary to begin the study of the area and to answer simple questions. Over the last decades they have tried to develop a synthesis of the most relevant findings which permits an understanding of more than isolated phenomena and suggests additional areas of research. The study of the more complex phenomena and simultaneously the development of original techniques to analyze the problems of the area it must be consequent to the development of theories which permit a systematic view of the problem area.
The significance of behavioral matter in accounting cannot rely just on organizational theory, but need to develop theories and use techniques from experimental psychology and economics to try to ask the more relevant questions. That’s way in the next section it will be examine the underlying social science from which ground BAR.
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3.
Interdisciplinary influences
As already mentioned in the previous section, Behavioral Accounting emerged as a research field through the influences and the confluence of knowledge from Behavioral Science (Bruns & DeCoster 1969).
Behavioral science is the study of individual and group behavior. A significant integration can be made between Accounting and knowledge extracted from a variety of different disciplines such as biochemistry, biology, physiology, psychiatry, psychology, sociology, economics, political science, anthropology, history, and others again (Bedford 1962).
The extraction and integration of the knowledge are still evolving nowadays, but even if accountants maintain a rather skeptical view, the contribution which behavioral science can add to human knowledge and accounting is extensive.
In a strict sense Behavioral science is a study of the impact of changes on behavior and in this perspective the accounting topics, that usually changes rapidly, could advantage of all the research opportunities that stem from the Behavioral Science. Economics, political science, organization theory, psychology and sociology are the most influent areas that through the years are contributing to BAR’s growth (Birnberg & Shields 1989).
At the beginning, Accounting was assumed to be a tool for managers in maximizing profits according to the traditional assumption of economics. During the 60s, in line with the evolution of the behavioral theory of the firm and its assumption, accountants become aware that the traditional assumption of economics could not explain satisfactorily the behavior during decision making process and it would need also an interdisciplinary view of the firm (Birnberg & Shields 1989). Since the 80’s the main stream of research were represented by the focus on institutional theory in particular the institutional environment of accounting, the link between organization and the surrounding environment.
The field that most has been influential on BAR it is obviously Psychology. Early, the influence was most linked with the adoption of laboratory experiments (Stedry
1960)4. Later Psychological Theories are contributing over and over again to the
development of BAR through Motivation psychology theories, that are focusing on
4 The author in 1960 conducted an experiment in which used aspiration level theory to explain budget behavior (see Birnberg & Nath 1968 about Stedry 1960).
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behavior and the related psychological process; social psychology theories, focused on the influence on individuals minds and behavior exerted by other people and cognitive psychology theories, focused on human thinking and the most influential psychological processes (Birnberg et al. 2007).
Other main topics from Psychology have impacted on accounting research, according to Birnberg & Shields (1989) the most important are: the Bayesian probability revision and the Lens model. Bayesian theory is a subset of statistical decision theory. The primary assumption is that beliefs should be expressed as subjective probabilities. The optimal revision of these beliefs give new information
according to Bayes’ theorem5. Instead, Brunswilk lens model is a statistically model
that study a set of cues and the behavior into an environmental event, trying to set up the relationship between the environment and the perceiving cognizing organism.
Psychology research related to various dimensions of decision making behavior helped to understand individual behavior in organization though for example the study of perception and cognition, the processes by which people organize and experience information, the mental process such as memory, classification, reasoning and judgment (Burke 1981).
In their seminal study, Birnberg & Nath (1967) highlight other theories that stem from psychology and have been influences on Behavioral Accounting such as Stimulus response theory, conditioning, and cognitive dissonance. Stimulus-response psychologists believe that all observed behavior is in Stimulus-response to stimuli. The behavior of the worker or the manager is the result of the variety of stimuli affecting him. A stimulus, can be made also to elicit a reaction quite different from that which is usually elicits. The process of removing dissonance refers to the cognitive processes whereby the individual resolves conflicts between what he believes and what he experiences or between two or more conflicting beliefs that he holds.
However, the probably most influent theory is the one originated by a concept in psychology: the functional fixation, arising from an investigation of the impact of past experience on human behavior. The background of past learning is an essential
5
The Bayes’theorem describes the probability of an event based on prior knowledge of conditions that might be related to the event. A Bayesian interpretation probability measures a degree of belief . See next sections for further information.
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repertoire of behavior that is available for restructuring when it is needed for new situations.
Duncker & Lees (1945), introduced the concept of functional fixation to illustrate the negative role of past experiences. He investigated the hypothesis that an individual’s prior use of an objective in a function dissimilar to appropriate novel use for the object.
Ijiri et al. (1966) viewed the decision making process as being characterized by three factors: decision inputs, decision outputs, and decision rules. They then introduced the conditions under which a decision maker cannot adjust his or her decision process to a change in the accounting process. Their experiment was set up to assess the extent to which individual decision makers alter their decision process after the occurrence of an accounting change. The impact of accounting data on users and their behavior has always been a subject of interest for social scientists. The interpretation of the data – fixation findings in general, that Belkaoui (1989) propose in his essay, could be represent by the subjects of the experiments. They have been mostly accounting students, have been conditioned to react to some form of accounting outputs and have failed to adjust their decision processes in response to a well-disclosed accounting change. The author’s explanation is that ‘the conditioning phenomenon inhibits the subjects from adopting the correct behavior, which is to adjust to the accounting change, and has led them to act as they have been conditioned to act in their previous behaviors or socialization sessions’. Thus, the conditioning phenomenon is a form of functional fixation.
Psychology it is oriented to explain individual and common behavior in accounting by personality traits and span of attention, but somehow failed to integrate these attributes to the total organizational scheme. On the other hand Organizational theory appeared to relate more directly the overall organizational functioning but failed to appreciate the contribution of individual behavior to the whole structure. Other influential forces that have emerged in BAR are also analytical economic and sociology. Analytical economic focuses on a number of assumptions and variables of importance in normative models of human behavior. Sociology was, indeed, to provide insights from field research and participant observer studies on
accounting topics (Birnberg & Shields 1989)6.
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From the sociological point of view the same accounting information may be perceived differently by different cultural groups because cultural experience affects the stimuli selected for attention (Burke 1981). For example language is an active determinant of though, social organization and behavior, then the language of accounting that could be different in different cultural context must also influence
user’s behavior (Belkaoui 1989)7.
In the last section of this chapter will be deal also with the role played in BAR by the individual processing for accounting information for decision making recognized with the cognitive revolution, in which the researchers studied the influence in decision making of the interaction between accounting feedback and individual’s cognitive style (Barefield 1972; Mock et al. 1972). During cognitive revolution psychology divided into normative and descriptive approaches the way of study cognition or thinking processes. The normative approach in cognitive psychology is concerned with measuring and understanding the quality of information processing with trying to determinate how people think or how people make decisions (Barefield 1972). The descriptive approach instead is not concerned with assessing thinking quality against some absolute criterion. It is concerned with understanding and measuring how people make decisions and process information. How much information is used in a decision rather than if the decision is “good” or “bad” (Driver & Mock 1975).
The relevance of behavioral accounting lies in its ability to explain the actual behavior associated with accounting processes as opposed to theoretical formulation and according to the real decision making behavior.
Behavioral accounting, laying its foundations on behavioral sciences, not only accepted the theories and techniques of this set of studies, but also it implicitly accepted the philosophical assumptions of the natural scientists on which they were based (Colville 1981).
The behavioral aspect of accounting should be jointly researched by accountants and social psychologists. As Birnberg (1973) stated: ‘the social psychologist are ignorant about accounting and we accountants have an inadequate knowledge of social psychology’. (Anthony 1960; Birnberg 1973).
To conclude, the potential behavioral problem in accounting is that accounting
7 For further information on the topic see on: Di Pietra (2000); Salter & Niswander (1995); Belkaoui (1995); Gray (1988); Hopwood (1999); Parker (1989); Catturi (1997); Hofstede (1980).
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information are not good or bad per se, but what the recipients of those information view them to be. Man does not exist apart from his philosophical being, and that being itself is made up beliefs, attitudes, and faiths, all of which are likely to have profound effects on the way in which an individual or an organization is affected by its accounting system and vice versa (Salle 1959).
The aim of reporting should be being a tool to provide consistent information about the company or organization to their stakeholders. If accounting research is going to assist in the development of better accounting techniques, efforts must be made to utilize findings from the behavioral sciences. ‘How the individual or group interacts with the system? How behavioral science theories can be used to view the accounting process and generate some testable hypothesis about it?’ (Birnberg & Nath 1967)
In the next section will be briefly reviewed the historic pathway in BAR to give a systematic and homogenous overview of the research field.
4.
The origins and the historic pathway of the Behavioral
research field
Knowing the history of a discipline can be very useful in terms of understanding and interpreting the current status of that discipline (Ashton 1984).
The relationship between accounting and decision making process is a great amount of contemporary accounting research. It is all matters of accounting information that from accountants come into the hand of decision makers within or outside the company or the organization in order to undertake accounting behavior, or on the other side, accounting information that come into the hand of accountants themselves in order to make decision about the production and supply of other accounting information among alternatives information systems.
The origins of BAR can be traced at least to the early 1950s, few empirical or experimental studies appeared before the middle 1960s. Two monographs on budgeting and management control systems, both written by non-accountants, were published in the 1950s (Birnberg 1973; Birnberg & Shields 1989; Ashton 1982). The first attempt to provide a new direction of research that combines accounting information and people has been attributed of Argyris (1952) that researched the
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attitudes of the individuals toward the budget and in particular the relationship between the budget setting process and the human behavior.
Later, in 1960, Stedry tried to deepen the understanding of the relationship between motivation goal, difficulty and performance applying the psychological concept of aspiration level to budgets. In the same year, Devine (1960) mentioned several behavioral issues that typically were ignored by accountants, as well as some research methods that might be useful for investigating behavioral aspects of accounting. Several years later it would serve as a paradigm form human information processing research in accounting. Devine is actually recognized as the first accounting researcher to emphasize behavioral aspects of accounting.
Devine (1960) considers the study of behavioral relations as a feasible area for accounting investigation. He highlights in particular the psychological reactions of the accounting information users and the importance of recognizing the behavioral assumptions in the accounting theory.
Becker (1967), on the contrary, criticizes the emerging stream of research because most of the experiments were performed by accountants or semi-accountants without know anything in behavioral science, calling Cook the new Behavioral Accounting Scientists.
The popularity of BAR increased from the middle 1960s to the early 1970s, and the area seemed to include a great number of research topics.
The two major topics were the impact of budgets and management control systems on the attitudes and performance of individuals who were subject to their control, and the impact of accounting information on the decision making behavior of internal and external users (Ashton 1984). Two other topics that often were considered part of behavioral accounting were human resource accounting and social responsibility accounting.
Between 1960s and 1970s some accounting researchers wanted to provide direction and establish boundaries for BAR.
Hofstedt & Kinard (1970) advocated ‘an overall strategy for approaching future research’. They were especially focused on the practical implication and the way to ensure this through emphasizing realistic research, issue and situation.
They tried to give one of the first systematic definition of BAR as the study of the behavior of accountants or the behavior of non-accountants as they are influenced by accounting function and reports.
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According to this definition, BAR encompasses three areas of research: the behavior of accountants, the influence of the accounting function on behavior, and the influence of accounting information on those receiving that information. While the authors discussed all three areas, most of the researchers attention was devoted to the third.
In 1971, the American Accounting Association (AAA) committee approached by first attempting to define behavioral science. They enunciate criteria to include a research in behavioral science. First, the objective of a behavioral science research must be to understand explain and predict human behavior. Second, the research must be accomplished in a scientific manner.
Several observers commented on the lack of theoretical frameworks in BAR. Bruns, in 1973, stressed again the fact that, in his opinion for the peculiarity features and the broad range of BAR questions: ‘the question of how broadly behavioral accounting should be defined will have to be solved on an hoc basis by each researcher’.
However, also the Committee, in 1974, observed that BAR has too much empirical
data and too few formal models8. These criticisms were directed toward the entire
area of BAR that suffer from experimental controls, lack of replication and an important disconnection with any theory which would enable to generalize the experiment results, without exploit the intellectual heritage of the underlying social sciences.
Over the decades many literature reviews, form different perspective, have been undertaken from researchers, in the attempt to make order in the discipline and to bring out a reference conceptual framework.
Hofstedt's survey (1976) found that the great majority of behavioral accounting studies that appeared in three academic journals over the period 1964-1975 was devoted to two areas: decision making and budgeting control systems. More than half the 90 articles he identified concerned the impact of accounting information on decision making.
Later Birnberg & Shields (1989) tried to categorized existent researches in behavioral accounting through the different subfield that they could identified: managerial control, accounting information processing, accounting information
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system design, auditing process research and organizational sociology. In 2011, Birnberg (2011) updated the previous review.
Other interesting review are in 1998, Dyckman (1998) that examined the published articles and the number of accounting faculty who selected the behavioral approach as area of interest; under the editorial supervision of James Hunton in 1998 Advances in Accounting Behavioral research tried to publishes papers in all the accounting areas subject to the influence of the applied psychology, sociology management science and economics.
Zimmerman (2001) has speculated on the focus of describing practice instead of testing theories, the emphasis on decision making instead of control and the use of frameworks from social sciences other than economics.
The replies to this research argued that heterogeneous research strategy that combines economic based and behavioral approaches produced more substantial managerial accounting processes than relying on a purely economic model. The variety of social sciences that informs the research in management accounting field offers the opportunity to explain the interaction with individuals (Luft & Shields 2002; Hopwood 2002; Lukka & Mouritsen 2002).
5.
Research methodology
The paradigms that make different the methodology of research in social science are typically distinguished in positivist, interpretative and critical approaches. According to the first paradigm social sciences and natural sciences have the same final objective, that is to formulate laws based on cause-effect relationship through an inductive reasoning. Through experiments, based on the manipulation and control of variables involved, and empiric observations is possible to identify regularity in order to make generalizations. During the paradigm development, inductive reasoning is replaced with the deductive one, through the mechanism of false assumptions, thanks to the awareness that the objectivity of knowledge can only be reached approximately. The final aim still remains to arrive at generalizations in the form of laws, even if limited in scope, probabilistic and provisional.
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personal interrelations. The social phenomena are not simply determined by social laws, but they are the product of a deliberate action of man's will exercised rationally. There is not a valid universal social reality for all people, but there are many. In opposition to the positivist view, social research is defined as "an interpretive science".
The most recent paradigm in social research stress the idea that the intrinsic meaning of social phenomena is sometimes intentionally hidden. In this contest, knowledge involves deconstructing the taken for granted to facilitate the emancipator change.
The natural scientific approach to the social sciences essentially represents an attempt to translate the principles and methodology of the natural and physical sciences into the realm of the social sciences (Colville 1981).
The positive philosophy belief that natural sciences represented not just one type of knowledge but just a true knowledge and argue that society could be organized on scientific principles by the extension of the scientific method to the study of social phenomena. This natural scientific approach provides a particular conception of human behavior. In this respect, human behavior has the same origins of the movement of objects, being caused and determined by external forces. Human behavior represents the expression of these forces and it gives rise to regularities or patterns which can be explained by laws.
The alternative paradigm to the natural scientific one reflects a way of viewing the relationship between individual and between individual and society in a different way.
Durkheim’s conception of sociology reflects the positivism on the social thinking and in the study of the social facts. Durkheim (1938) described the task of sociology as being the explication of social facts, in scientific manner. On the contrary, Weber, belonging to the alternative paradigm, saw the sociological enterprises as being concerned with the understanding and interpretation of social action. In action is included all human behaviors when and insofar as the acting individual attaches a subjective meaning to it (Weber 1957).
The subject matter of the social sciences was distinguished from the natural sciences in the fact that social world was interpreted by individuals as being meaningful whereas the physical world has no meaning for molecules and atoms since they are not sentient beings (Colville 1981).
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If reality is not given but is constructed and interpreted, social scientists are not so much interested in uncovering reality as in investigating under what circumstances people thoughts are real, how people individually and collectively make sense of their worlds and organize their streams of experience, and how can social science gain a correspondence with describe and explain social reality.
Behavioral accounting studies bring together methodology from psychology and experimental economics, finding a balance between positivist and interpretative approach. They dealing with social norms and potentially differing values across cultures asking whether differences in culture result in different decisions and behaviors.
In this context research theory is grounded to the extent that it is based on and emerges from the data systematically obtained from social research. Theory is thus inductively developed from data and it is said to be discovered .
As Colville (1981) states, ‘BAR is unlikely to succeed on the practical and therefore the theoretical level as long as it continues to pursue the natural scientific method which, it has been argued, is unsuited to the problems of social behavior of which behavioral accounting is a part’.
Hofstedt & Kinard (1970) identified the unit, from the study of individuals to the study of the environment, that acts upon accounting or that accounting helps to shape, in order to define different sets of research question in BAR. The sets of research question focus on small groups, studies in which the relevant unit of analysis consists of a small number of individuals; organization and environmental conditions, that try to investigate the role of accounting in society, the interaction can take the form of the external forces that shape accounting, as well as studies of the role accounting has played in shaping the world in which living.
The last set of research question identified focuses on individuals. This studies explore the characteristics of a single actor or the actor’s response to a particular accounting data set, accounting related stimulus or accounting related setting. According to the authors, one line of individual research can be characterized by a concern with how individuals solve problems. The second line of research explicitly considers the role of strategic behavior in the actor’s decision. The individual choice studies consist mostly of experiments, though some utilize surveys. Experiments are particularly appropriate when the relevant dimensions of the decision environment in which the decision maker interact with the stimulus and
