Research Methods in Accounting

presented by:
Erni Ekawati

1
 Agenda
Business Research Types
The Positivist Approach
Styles of Thinking
The Building Blocks of Theory
Econometrics and Modeling
Fundamental of Financial
Economics
Sample of Research Articles
Statistical Tools

2
Business Research Types

Basic research

Applied research

3
 Basic Research

Attempts to expand the limits of

knowledge.
Not directly involved in the solution
to a pragmatic problem.

4
 Applied Research

Conducted when a decision must be

made about a specific real-life
problem

5
 Basic and Applied Research

Reporting
Descriptive Exploratory
Research Analysis
Case Study
Basic
Experimentation
and Empirical
Applied Research
Research Non-Experimentation
Explanation
Analytical Prediction
Research

6
The Positivist Approach in Empirical Research

Problem

Literature Review

Hypothesis
Development

Research Methods

Results
7
Defining Problem in Case Study

Symptom Detection

Analysis of
the Situation
Defining Problem
in Case Study
Problem Definition

Statement of
Research Objectives
 Styles of Thinking
Rationalis
m
Postulational 

Self-evident truth 
Scientific Method
Method of authority 

Idealism Empiricism
Literary


Untested
Opinion 

Existentialis
m
9
 The Building Block of Theory

Concept Theories
Construct Propositions/
Definitions Hypothesis
Variables Models

Hypothesis Model

Must be adequate for its purpose

Theory Must be testable Empirical

Must be better than its rival Research
10
 Econometrics and Modeling
Econometrics is methods of carrying out the
analysis of economic data.
Hypothesis Testing: (e.g. 3-factor CAPM)
Economic Model (through components and links)
Ret = f (Beta, B/M, Size, 1, 2, 3)
Statistical Model
Ret = f (Beta, B/M, Size, 1, 2, 3, )
Sampling process specified in the statistical model
See: Brockman (2003) for another type of
modeling.

11
 Empirical Research
Experimentation Non Experimentation
Comparability Projectability
Matching Similarity (CLT)
Randomization through Randomization through
random assignment of random assignment of one
treatment sample of population
Result cannot be Result can be generalized
generalized Independent variable
Independent variable cannot be manipulated
can be manipulated Modeling for either
Proper experimental explanation or prediction
design.

12
Foundations for Financial Economics

Provides the foundation for the study of modern

financial economics.
Individual’s consumption and portfolio decisions
under uncertainty and their implications for the
valuation of securities.
Provides derivation of CAPM.
Finance is sub-discipline of economics.
Advances in finance theory have had implications
particularly for research in Accounting.

13
 Implications of Finance Theory
on Accounting Research
Markowitz (1952), Sharpe (1965)  basis for pioneering
work of Ball and Brown (1968), linking stock market
reaction to the provision of accounting information.
Fama (1970)  event study in Accounting
Jensen & Meckling (1976), agency cost and debt-equity
tradeoff  a stream of research in accounting related to
the choice of accounting policy, and management
accounting (Baiman, 1982).
See Beaver (2002) – Perspectives on Recent Capital
Market Research during the past ten years (e.g. Market
Efficiency, Feltham Ohlson Modeling, Value Relevance,
Analysts’ Behavior, Discretionary Accruals)
14
 Sample of Research Articles
Demski (2004), Endogenous Expectation  Descriptive
Research – Analysis

Beaver (2002), Perspectives on Recent Capital Market

Research  Descriptive Research – Analysis

Desai et al.(2004), Value Glamour and Accruals

Mispricing: One Anomaly or Two?  Empirical Research
– Non Experimentation – Explanation

Bajaj et al.(2004), Mean Reversion in Earnings and the

Use of E/P Multiples in Corporate Valuation  Empirical
Research – Non Experimentation – Prediction

15
 Sample of Research Articles
Brazel et al.(2004), Electronic versus Face-to-Face
Review: The Effects of Alternative Forms of Review on
Auditor’s Performance Empirical Research  Empirical
Research – Experimentation

Brockman (2003), The Inter-Temporal Behavior of

Informed and Uninformed Traders  Modeling and
Empirical Research

Conor and Korajczyk (1989), An Intertemporal

Equilibrium Beta Pricing Model  Analytical Research.

16
 Statistical Tools
No. Dependent Independent Model
Variable Variable
1. Continuous (1) Continuous (>1) Multiple Regression
Y1=X1+X2+…+Xn
Mixed Ancova

2. Categorical Continuous (1) Multiple Discriminant

(2level) Y1=X1+X2+…+Xn
Mixed Multinomial Logit
Y1=X1+X2+…+Xn

3. Continuous or Categorical (1, Conjoint Analysis

Categorical (1) 2 level) Y1=X1+X2+…+Xn

17
 Statistical Tools
No Dependent Independent Model
Variable Variable
4. Continuous ( Categorical ( 1) Manova
2) Y1+Y2+…+Yn=X1+X2+
…+Xn
5. Mixed Mancova
Continuous ( Y1+Y2+…+Yn=X1+X2+
2) …+Xn
6. Mixed (1) Canonical Correlation
Y1+Y2+…+Yn=X1+X2+
Mixed (2) …+Xn
7. Mixed
Simulteneous Equation
Continuous ( Y1=X11+X12+…+X1n
2) Y2=X21+X22+…+X2n
Ym=Xm1+Xm2+…+Xmn

18
 Statistical Tools

No. Tool Model

8. Factor Principal components/common
Analysis factor analysis (to squeeze a large
number of variables).

9. Cluster To classify a sample into a small

Analysis number of mutually exclusive
groups.

19