Joachim Gassen, Professor of Accounting and Auditing at Humboldt University of Berlin, is Principal Investigator of three TRR 266 projects. In project B04 “Real Effects of Transparency”, he examines how transparency changes consumer behavior and influences firms’ decisions about their location, investment, financing, incentive systems, and product design choices. In project B02, he investigates how private firm transparency affects investment as well as the M&A and labor market. As PI and founder of the TRR 266 Open Science Data Center Gassen encourages the scientific community to embrace collaboration, joint learning and the establishment of a positive error culture.
Accounting: establishing trust by facts
I started flirting with quantitative business science during my studies of economics. I love to talk data and numbers. My passion for accounting, however, was something I had to discover. My enthusiasm started to grow when Bernd Pellens joined my school as a professor. He simply knew (and still knows!) how to get students excited about accounting. It only took him one sentence to spike my interest: “Accounting is applied information economics.” This changed my view on accounting completely – and laid the foundation for my ongoing fascination with the topic. Accounting seeks to establish trust by communicating (sometimes opinionated) facts. This suits my interests perfectly. After all, I initially started studying economics to become a journalist.
We need to collaborate by learning from and
with each other.
Better together: collaboration in research
In addition to my research, I passionately engage as an advocate for collaboration in research. There is still a lot of competition among researchers. And this is not the best approach to follow. As individual researchers, we can only achieve little – we need to collaborate to develop real impact. This is an insight I owe to the open source movement. I am a member of the first generation of digital natives – I was socialized with and by the computer and joined the open source movement at an early stage. There I experienced how much we can achieve if we don’t have do everything on our own. I started to transfer this idea to research – asking myself: How much more impact could we achieve if we allowed other researchers to build on our work and look over our shoulder? How many mistakes could we avoid? The fact that a lot of research is still conducted behind closed doors is just grotesque. If we had built the Internet with this approach, we would still be stuck in the digital stone age. We need to collaborate by learning from and with each other.
We would be very happy if we could establish the open science idea within the accounting and tax community and beyond – and make open collaboration the norm in order to do things better together.
Making open science the norm
The TRR 266 embraces the idea of collaboration. We benefit from the great network of researchers working together on the same overarching question, but from different angles. This allows us to tackle issues that we could never address as individual researchers. It allows us to make a difference – together. I am so glad to see that this way of thinking helps us to reduce the competition between the different institutions our researchers are working at. With our Open Science Data Center, we want to promote this idea and our research with researchers and other interested parties beyond our network. We make our methods, data and findings publicly available. This allows others to build on our research and comment on it. We would be very happy if we could establish the open science idea within the accounting and tax community and beyond – and make open collaboration the norm in order to do things better together.
It needs more than just a positive error climate to path the way for open science.
Changing the path
For many young researchers, open collaboration already is an everyday normality. Older folks like me sometimes have problems to connect with this approach, since we were socialized differently. Plus: Many senior academics work mostly conceptually on projects; the operational work is taken care off by their younger colleagues. That’s why they don’t experience the benefits of open science firsthand: the quality improvements and the huge boost in productivity. They are more concerned about a perceived risk of surfacing errors when they share their work and this outweighs the benefits for them. But where people are involved, errors will be made. The only way to reduce them successfully in the long run is to learn to tolerate our mistakes and to learn from the ones that we and others make. However, it needs more than just a positive error climate to path the way for open science. We, for example, also need to change how research output is measured and how recruiting and tenure committees evaluate candidates. Currently, publications in top journals are usually the decisive factor. This approach needs to be expanded. The value of the research for the scientific community should matter, too. If someone, for example, provides relevant data or develops a software package that benefits thousands of researchers, this also creates scientific impact and should be rewarded accordingly.
Study preregistration motivates to tackle ambitious projects in the first place.
Carbon footprint labeling: how to change consumer behavior?
Also related to the ideas of open science is the idea of study preregistration. Following this idea, the last year’s registered report conference of the Journal of Accounting Research provided the opportunity for selected projects to receive crucial feedback at the study design stage, prior to running the actual analysis. Plus: studies who successfully pass the subsequent review process received an in-principle acceptance by the journal. The only condition for the publication of the final study: the researchers need to gather and analyze the data as promised, regardless whether their results support their predictions. I think this is just fantastic! It prevents p-hacking and HARKing (hypothesis development after results are known) as it avoids that null results end up in the drawer. In the end, all this motivates to tackle ambitious projects in the first place. I’m a little bit proud that our experiment on carbon footprint food labeling has received such an in-principle acceptance by JAR. The experiment we’re running with a large canteen aims to examine how information on the carbon footprint of food should be designed to change consumer behavior. A project dear to our heart! It is a great feeling that we can now focus entirely on running the experiment as rigorously as possible. We are already looking very much forward to seeing the results.
Through interviews we investigate whether and how standard setters think about the real effects of transparency.
How do standard setters think about real effects?
The experiment is part of our TRR 266 project B04, in which we are investigating the real effects of transparency – or in other words: the impact of transparency on labor and product markets. Our portfolio of subprojects is as broad as the subject area. Through interviews we investigate, for example, whether and how standard setters think about those real effects. Traditionally, standard setters focus on investors. They develop accounting standards to provide investors with decision-useful information. The impact that these standards might develop besides financial markets is normally beyond their scope. However, we find that standard setters become increasingly aware that accounting standards might imply such real effects and that a growing number of standard setters tries to develop standards that reach societal objectives in the public interest. Standard setting thus becomes a much more political process, since acting in the public interest necessitates a balancing of interests and requires democratic processes. We try to analyze and better understand these issues.
Private firms still are somewhat neglected by research. We want to help changing that.
How does transparency regulation of private firms affect decision-making?
In project B02, we examine how private firms transparency affects investment behavior and the labor market. Private firms still are somewhat neglected by research. We want to help changing that, because these firms are very important for our economy. We have around 3 ½ million firms in Germany – and only about 500 are listed firms, the others are private. What’s fascinating is that transparency regulation for private firms varies widely across countries. While most private firms have to disclose a lot of information in Europe, they are not required to disclose any financial accounting information in the US. We study how these different transparency systems affect the economy, e.g. via investment decisions. Since private firms are very heterogeneous, we don’t analyze them as one homogeneous group but differentiate them along the business life cycle.
Currently we investigate the role information about private firms plays in the market for mergers and acquisitions.
The role of private firm transparency for the M&A market
Currently we investigate the role information about private firms plays in the market for mergers and acquisitions. To get the idea, imagine how detailed information about all electrical wholesalers in Berlin, for instance, would enable investors to assess whether this is a market in which acquisitions are worthwhile. And this is particularly important when it comes to company succession – especially now in the wake of demographic change. Many firms face succession issues and need to thus depend on efficient acquisitions to find an acquirer who can continue to run their business the best way possible. So, this is an example, where transparency regulation can generate a positive externality and, in the end, benefit all parties involved. Janja Brendel, a project member and TRR 266 Research Fellow, has already presented our study at a very prestigious conference in Hong Kong. We are currently working on finalize our paper – we aim to make a working paper available by the end of 2022.
I put great effort on translating my research into formats that are appealing to people outside my narrow academic cocoon.
Like most researchers, I want my research to make a difference – in my field but also for society at large. However, advising policy does not imply that we lecture them on what to do – because we can’t. Instead, we should use theory to outline arguments and empirics to describe real-life phenomena as well as provide rigorous evidence on cause-and-effect relations. If we then succeed to communicate these insights to regulators for example, we can expect them to build on them in the political process. This is why I put great effort on translating my research into formats that are appealing to people outside my narrow academic cocoon. I enjoy illustrating my findings via data visualizations or explaining them via blog posts – narrating stories. Stories are what people remember – whether they’re regulators, decision-makers of firms or citizens. Stories can help us to break down prior beliefs and make scientific evidence heard.
The TRR 266 can contribute to a better understanding of when transparency is useful and when it is ineffective or even harmful.
The Yin and Yang of Transparency
The TRR 266 as a whole, in turn, can contribute to a better understanding of when transparency is useful and when it is ineffective or even harmful. And this is important, as transparency regulation does not always seem to be implemented, because it is the most effective tool in reaching a certain objective. Sometimes it appears as if it is being used as it constitutes a convenient political compromise. Let’s have a look, for example, at sustainability reporting: Its mandate in the E.U. has the objective to encourage companies to become more sustainable in an overall economic sense. This shifts the responsibility for the change to a large extent to the capital market, to investors and customers. For me this seems almost as if the regulators shy away from discussing the fundamental question of how we need to develop corporate governance in a global economy where we regularly allow firms to use resources whose property rights are not efficiently assigned. This is why studying the yin and yang of transparency matters for the TRR 266 and beyond.
*The article reflects the opinion of the researcher and not necessarily the views of the TRR 266. As a scientific association, the TRR 266 is committed to both freedom of speech and political neutrality.