No. 30: Accounting measurement intensity

Abstract

We propose an empirical measure of metering problems, i.e., the difficulties of measuring productivity and rewards in firms. We build on the insight that these metering problems are reflected in the intensity with which firms apply Generally Accepted Accounting Principles when preparing their financial statements to capture economic transactions. We adapt a simple computational linguistics algorithm to identify textual patterns that uniquely signify heightened use of accounting measurement in preparation of accounting reports. We validate the output of this algorithm before computing time-varying, firm-level scores of accounting measurement intensity (AMI). We then show that AMI is associated with the decisions of professional users of accounting information. We also document that AMI is correlated with the cross-section of expected equity returns and with the cost of debt and non-price terms in the private loan market. In CEO compensation contracts, we see lower pay-performance sensitivity to accounting performance metrics as AMI increases. Finally, we report that AMI correlates with investment and hiring decisions in firms; factor productivity, as well as the efficiency of resource allocation. Together, these findings are consistent with the predictions in Alchian and Demsetz (1972) about how metering problems affect the boundary of the firm.

 

Beteiligte Institutionen

Die Hauptstandorte vom TRR 266 sind die Universität Paderborn (Sprecherhochschule), die HU Berlin und die Universität Mannheim. Alle drei Standorte sind seit vielen Jahren Zentren für Rechnungswesen- und Steuerforschung. Hinzu kommen Wissenschaftler der LMU München, der Frankfurt School of Finance and Management, der WHU – Otto Beisheim School of Management, der ESMT Berlin, der Goethe-Universität Frankfurt und der Carl von Ossietzky Universität Oldenburg, die die gleiche Forschungsagenda verfolgen.