Popper's Methodology of Falsificationism and Accounting Research

Author(s): Ruth D. Hines

Source: The Accounting Review, Vol. 63, No. 4 (Oct., 1988), pp. 657-662
Published by: American Accounting Association
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THE ACCOUNTING REVIEW
Vol. LXIII, No. 4
October 1988

Popper's Methodology of
Falsificationism and
Accounting Research
Ruth D. Hines

ABSTRACT: Popper's falsificationism is apparently being adopted as an ideal by accounting

researchers. For example, Christenson [1983] has criticized Watts and Zimmerman's [1978,
19791theories for not conforming to Popper's approach. This paper argues that Popper's fal-
sificationism should not be viewed as an attainable ideal by accounting researchers, and that
standard of rigor and research and experimental design are sufficient to support Christenson's
criticisms without recourse to Popper's methodology.

OPPER' S [1959] falsificationist meth-
odology represents an attempt to
solve a particular logical problem.
The problem is that observations which
are in accordance with a theory cannot
be taken to "confirm" or "prove" that
theory. Accepting a theory because of
the existence of confirming evidence
commits the fallacy of "affirming the
consequent" and is a well-recognized
error of logic.' Popper's approach de-
pends upon the point that the falsity
of universal statements can be logi-
cally deduced from singular statements.
Therefore, Popper prescribed that the-
ories be negatively framed: theories
should state the type of observation(s)
that refute them (and, hence, would be
decisive observations), rather than posi-
tively state those observations which
would support or confirm them. The
strength of Popper's falsificationist ap-
proach derives from the fact that, while
it is logically fallacious to affirm the con-
sequent, it is logically correct to deny the
consequent (the logical rule of modus
tollens).
The view that Popper's falsificationist
I
Hume [1888] first articulated the major problem that
this point of logic presents for empiricism. An associated
deficiency of confirmationism or verificationism, fur-
ther rendering it an extremely weak form of testing,
relates to the fact that every false statement has an in-
definite number of factually correct consequences. Thus,
there will always be many observations available to
support a false theory. For example, prior to Einsteinian
theory, everything in the observable world seemed to
confirm Newtonian theory. In fact, as Leibniz [1677]
showed, it can be logically demonstrated, that any finite
number of observations can be accommodated within an
indefinitely large number of different explanations. As
Lakatos [1978, p. 991 states: "Creative imagination is
likely to find corroborating novel evidence even for the
most 'absurd' programme, if the search has sufficient
drive."
The author gratefully acknowledges the helpful com-
ments on previous versions of this paper of Charles
Christenson, the anonymous reviewers, George Foster
and participants in a Macquarie University Workshop in
Accounting and Financial Management. The author has
also benefitted from the comments of Bob McLaughlin
and participation in his seminars in Philosophy of Sci-
ence at Macquarie University.
Ruth D. Hines is SeniorLecturer in Ac-
counting and Financial Management at
Macquarie University.
Manuscript received November 1985.
Revisions received June 1986, August 1987. April
1988, and July 1988.
Accepted May 1988.

657

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658
methodology represents a scientific ideal
appears to be gaining popularity with
accounting researchers. For example,
McKee et al. (1984, pp. 647, 651-652]
and Watts and Zimmerman [1986, pp. 2,
8-10, 12] make favorable references to
Popper. Recently, Christenson has based
a critique of work on the positive ac-
counting theory of the Rochester School
on its inconsistencies with the guidelines
offered by Popper's falsificationist ap-
proach. The absence of a formal pub-
lished reply-from the Rochester School
or elsewhere-appears to leave the im-
pression that it is appropriate to hold
empirical work up to the standards of
Popper. The purpose of this Note is to
clarify the meaning of Popper's falsifica-
tionist approach and to argue that it is
not a practical evaluative guideline for
empirical work in accounting. It is im-
portant that these arguments be made
and understood because acceptance of
Popper's falsificationism as an attain-
able ideal and the consequent evaluation
of empirical work solely from this per-
spective has the potential to arbitrarily
and harmfully limit the nature and
domain of accounting research. It is the
intent of this Note to help forestall such
harm. It is important to distinguish the
purpose of this paper from a defense of
the positive theory work that was the
subject of Christenson's critique.
POPPER'SFALSIFICATIONISM:
A CLARIFICATION
There appears to be confusion among
accounting researchers concerning Pop-
per's falsificationism. For example,
McKee et al. [1984, pp. 651-652] state
that their study represents an attempt to
refute Watts and Zimmerman [1978].
This is not correct; their study represents
an attempt to confirm them. In fact,
they were unable to confirm them.2
However, the failure of verificationist or
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The Accounting Review, October 1988
confirmationist tests does not constitute
a refutation or falsification of a theory.
It seems that the confusion among
some accounting researchers about falsifi-
cationism stems from the belief that the
framing of an hypothesis in the "null"
form is a form of falsificationism. How-
ever, this is incorrect. Such framing rep-
resents merely an approach to testing
samples, and represents a form of con-
firmationism rather than falsification-
ism: rejection of the null provides some
support for a theory but failure to reject
the null does not imply acceptance of the
null, or falsification of the theory-it
merely implies a failure to obtain con-
firmationist support for a theory. In-
deed, testing the null hypothesis fre-
quently represents a very weak form of
confirmationism. When a test of signifi-
cance rejects the null hypothesis, all that
is inferred is that the obtained sample
results are unlikely to have occurred by
chance. Only if the experimental design
is such that it rules out all competing
explanations to the tested theory, can it
be stated with some confidence that the
data does provide confirmatory evidence
for the tested theory.
WITHPOPPER'S
DIFFICULTIES
FALSIFICATIONISM
At the logical level, Popper's falsi-
ficationist approach has encountered
some difficulties. For example, the as-
sumption that a falsifying observation
will persist is itself an inductive assump-
tion, based on experience that the same
events or observations have persisted in
the past and, hence, will persist in the
I This point does not detract from the importance of
McKee et al's [19841 results. Indeed, given the logical
weakness of confirmationism, the doubt that McKee et
al. [1984] throw on Watts and Zimmerman's [1978] own
confirmatory results, and their own failure to confirm
Watts and Zimmerman's [1978] theory using an alterna-
tive data set, casts serious doubts on the correctness of
Watts and Zimmerman's theory.
Hines 659

future (see Salmon [1966, pp. 21-27] and theories, he either plunges into some log-
Quinton [1967, p. 399]). ical blunder, or distorts history to fit
If these logical difficulties are ignored his rationality theory." When account
because there is no answer to this prob- is properly taken of scientific history,
lem of induction, it can be asked whether it emerges that "history falsifies falsi-
Popper's criteria constitute either a satis- ficationism" [Lakatos, 1978, p. 1231.
factory set of ideal criteria for theory Kuhn's [1970] famous work is an histor-
assessment and/or an accurate descrip- ical/sociological investigation of the way
tion of the selection process by which science and scientists proceed, and it
scientific theories are adopted in prac- clearly demonstrates that Popper's falsi-
tice. Popper held that ideal criteria for ficationism bears no relation to the way
scientific-theory assessment could be es- things "really happen" in science. "No
tablished by fiat or convention, that is, process yet disclosed by the historical
without reference to the way in which study of scientific development at all
science is actually practiced. His concern resembles the methodological stereotype
was with normative rules, as Christenson of falsification..." [Kuhn, 1970, p. 77].
[1983, p. 8] notes. This concern meant There are no scientific theories from
that Popper did not require his a priori which all anomalies or falsifying obser-
rules to adequately or correctly describe vations have been eliminated. Feyera-
the way in which scientific practice bend [1978, pp. 69-161] analyzes in great
actually proceeds. However, as Lakatos detail the work of Galileo, ". . who was
[1978, pp. 123-138] discusses, it is prob- faced by an embarrassing amount of
lematic to establish the suitability or prima facie refuting instances, who was
superiority of a set of normative criteria.unable to explain them for he lacked
Indeed, since Popper, the divorce of nor- the necessary knowledge..." (p. 159).
mative and historical (descriptive) ac- Copernicus' theory, which Galileo resur-
counts of theory appraisal has been rected and extended to eventually replace
rejected by leading philosophers of the Ptolemaic system, was riddled with
science, such as Kuhn, Feyerabend, inconsistencies and refuting observa-
Lakatos, and Laudan. Lakatos [1971, p. tions. Newtonian theory was beset by
91] states, "philosophy of science with- counterinstances [Kuhn, 1970, pp. 77-
out history of science is empty; history 91; Feyerabend, 1978, pp. 59-63; and
of science without philosophy of science Lakatos, 1978, p. 701. Bohr's atomic
is blind." It, therefore, seems appro- theory was introduced and retained in
priate to question whether Popper's the face of precise and unshakable con-
method is a descriptively valid account trary evidence [Feyerabend, 1978, p. 56
of the way that research proceeds in and Lakatos, 1978, pp. 55-58].
science. Therefore, it does not seem reasonable
to base a large part of the criticism of the
HISTORY "FALSIFIES" FALSIFiCATIONISM
positive theory on the fact that there are
Lakatos [1978, p. 1271 states, "Logic some instances (or firms) that are incon-
derForschung (Popper's Logic of Scien- sistent with it (see Watts and Zimmer-
tific Discovery [1959]), on the whole, man [1978, p. 125] for a detailed list that
is dryly abstract and highly ahistorical." indicates those firms which voted on the
Lakatos [1978, p. 127] continues, "Where Financial Accounting Standards Board's
Popper does venture to remark casually Discussion Memorandum on General
on the falsifiability of major scientific Price Level Adjustments in the opposite

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660
direction to that predicted by their the-
ory). Indeed, as Christenson [1983, p. 8]
points out "From a strictly logical point
of view, a proposition is falsified not by
experience but only by the acceptance of
another proposition with which it is logi-
cally inconsistent." From this perspec-
tive it appears there are presently no
well-articulated complete theories re-
garding accounting method preferences
and/or choices besides the positive the-
ory of the Rochester School.
THE DUHEMPROBLEM
In Popper's infrequent references to
the history of science, he turned anoma-
lies, or refuting observations, into "cru-
cial experiments" and then exaggerated
their immediate impact on the history of
science [Lakatos, 1978, p. 127]. Great
scientists have almost never accepted
refutations as being decisive, because of
important problems and reservations
which so frequently in reality accompany
a refuting instance. Feyerabend, Kuhn,
and Lakatos illustrate amply that a "re-
futing" observation may disagree with a
theory for a variety of reasons and
hence, in practice, a "refuting" observa-
tion does not necessarily "logically"
refute a theory.
A major problem in considering a
refuting observation is that a theory con-
sists of a complex of refutable universal
statements, rather than a single refutable
statement like, "All crows are black."
Furthermore, to permit testing, more
statements than those of the tested
theory are involved-the theory must be
augmented by auxiliaryassumptions, such
as laws and theories governing mea-
surement and the use of instruments. Ini-
tial conditions, such as description of the
experimental set-up, must also be added.
If a prediction that follows from these
joint premises turns out to be false, then
all that can be logically concluded is that
at least one of the premises is false and,
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TheAccountingReview,October1988
hence, no individual hypothesis or the-
ory is conclusively falsifiable. This
problem of the jointness of testing, is
referred to as the Duhem problem (see
Duhem [1954]).
In accounting research, for example,
market efficiency research has generated
many anomalies (see Foster [1984]; Lev
and Ohlson [1982]; and Ricks [1982]),
but researchers in the area have not
viewed the efficient markets hypothesis
as falsified, because of, inter alia, the
impossibility of locating the source of
the "falsification" within the maze of
premises which is effectively tested by a
capital market efficiency test [Hines,
1986a]. A capital market efficiency test
jointly tests premises concerning data
quality; assumptions relating to transac-
tion cost estimation; whether informa-
tion is good/bad; the timing of events
and information release; a specific asset
pricing model; measurement theories,
instruments and procedures, and so on.
Indeed, Foster [1984, p. 169] and Lev
and Ohlson [1982, p. 274] prefer to call
efficient markets hypothesis counter-
observations "research puzzles" and
"surprise results" respectively, rather
than "anomalies" or "falsifications."
COMMENTS
CONCLUDING
The various methodologies developed
by philosophers of science are relevant
to accounting and finance research
as organizing, heuristic, and analytical
frameworks. However, to believe that
there is a single "ideal" methodology,
and/or to finally judge theories against
such a methodology, is ill-advised. If the
dangers of scientism can be appreciated
by researchers early in the methodolog-
ical debate within accounting and fi-
nance literature, then research may per-
haps be saved from the dogmatism and
many diversions of resources that have
resulted in other fields of inquiry and
from an unwarrantedreverencefor science
Hines 661

and "the scientific method" (see Berger
[1966, p. 24]; Burrell and Morgan
[1979]; Mackenzie [1977]; McHugh
[1971]; and Schuster [1984]). For exam-
ple, Mackenzie [1977] argues that be-
haviorism failed largely because it was a
research program devoted to the pursuit
of "objective" methods, to the exclusion
of consideration of the fundamental on-
tological status or nature of behavior,
namely its dependency upon mental (i.e.,
internal and, hence, not readily observ-
able) processes. Similar criticisms have
been made of research programs in so-
ciology such as the Berger and Kellner
[1981] critique of the "cult of quantifi-
cation" in sociological research: "a posi-
tion that any sociological propositions
that cannot be couched in mathematical
terms are 'soft,' unscientific, and use-
less" (p. 126).
Indeed, Mintzberg [1979] and Zeff
[1983, 1986] suggest that accounting re-
search may already be constrained by a
repression of criticalness and creativity,
caused by a commitment to using rigor-
ous statistical procedures that are in-
correctly perceived by accounting re-
searchers to be "the scientific method."
This may be one reason why, despite
calls by accounting researchers for the
development of alternative theoretical
perspectives on accounting which would
require alternative methods (see Burchell
et al. [19801; Cooper and Sherer [19841;
Chua [19861;Hines [1986a, 1986b, 1988];
Hopwood [1983]; Mintzberg [19791;
Nord [1986]; Tomkins and Groves
[1983]; and Zeff [1983]), there appears
to be little researchpresentlyproceeding
on the development of alternative
theoriesto positive theory.
In concluding, this Note is not in-
tended to suggest that there are no cri-
teria againstwhich positive theoriescan
be evaluated. The author believes that
Christenson's[1983]criticismsof Watts
and Zimmerman'stheoriesremainvalid
withoutrelianceon Popperbecausestan-
dards of rigor and good experimental
design are sufficient to support that
Watts and Zimmermanshould have: (i)
avoided the use of crudeproxiessuch as
the use of firm size to operationalizethe
concept of "politicalcosts"; (ii) avoided
the use of unrealisticassumptionsin their
explanatorytheorizing;(iii) investigated
their anomalies; (iv) clarified whether
theirtheorieswereuniversalor probabil-
istic, and if the latter,explainedon what
conceptualgroundsthey should be held
to be so; (v) if probabilistic,they should
have statedthe proportionof anomalous
observationswhich would be consistent
withtheirtheories,andhencethe propor-
tion beyond which counterobservations
wouldthreatentheirtheorieswithdiscon-
firmation,and (vi) rigorouslytestedtheir
theories against competing hypotheses
rather than merely presenteddata that
were(partially)consistentwith them.

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