Back to the Origins of Positive Theories: A Contribution to an Analysis of Paradigm Changes in Accounting Research

Abstract

In this article, we analyse factors that explain the success of the empirical methodology of ‘positive accounting theory’ (PA) in accounting research. In fewer than ten years, between 1960 and 1967–1968, PA became dominant in the main accounting journals, and normative theories disappeared from academic publishing. The reasons for this success are not clearly established. The propagators of PA (Ball and Brown, 1968; Watts and Zimmerman, 1986) advocate the fertility of their approach, while others (e.g. Mattessich, 1995; Mouck, 1988; Whittington, 1987; Williams, 1989) denounce their ostracism and systematic denigration of rival approaches. Both proponents and opponents of PA consider the emergence of positive theories as a radical severance; however, we suggest that the move from normative to positive theories occurred gradually. Even if they took advantage of the reform that took place in US business schools during the 1950s, the proponents of PA also benefited from a decoupling between the academic world and accounting practice initiated by their predecessors.

Notes

In the rest of this article we shall use the (neutral) expressions of ‘empirical’ current or ‘positive’ current to designate the school of thought that aims to explain and predict accounting choices. Note that several ‘positive’ publications predate the articles of Watts and Zimmerman (e.g. Ball and Brown, 1968).

According to Galbraith (1961) and Zeff (1972), the US is the country that took use of accounting theory furthest to justify certain choices in preparation of standards in the period 1945–1970.

Most of the history presented here is American. Our close focus on the US given the country's central importance in analysis of paradigm shifts in accounting research is not an indication that we believe it was the only country to have researchers. Among the authors mentioned earlier is Raymond Chambers, whose university career was in Australia, not the US, but whose career path shows similarities with that of the American normative theorists (of native or foreign origins). Chambers often worked in collaboration with economists as, before becoming the first head of the department of accounting in his university, he occupied the chair of accounting within the economics department (Colasse, 2005).

This high growth in numbers is largely explained by the homecoming of draftee soldiers. Many of them had grants for their university studies and a large number (750,000 between 1945 and 1950) chose to study business.

As Gaffikin (2003, p. 294) points out, Chambers was influenced by Hayek and Von Mises, and Mattessich by Debreu.

One interesting episode described by Daniel (1999, pp. 212–213), historically outside the period covered here but nevertheless a telling indicator of accounting's role in business education in the US, is the movement in the second half of the 1970s for the foundation of Accounting Schools independent of Business Schools. This initiative, which had the support of the American Institute of Certified Public Accountants and some of the leading firms in the profession, was short-lived. Among the reasons for the movement reported by Daniel were the desire to strengthen professionalisation of accounting activity, but also the fear that accounting, which formed the core of Business School curricula, would be supplanted by other disciplines that were better suited to the new demands for research affecting the operation of those schools.

The Ford Foundation is a charitable organisation set up in 1936 by Edsel and Henry Ford. Its mission is to ‘strengthen democratic values, reduce poverty and injustice, promote international cooperation, and advance human achievement’ (see www.fordfoundation.org). Jerold Zimmerman (2001) reports that the work of the Ford Foundation that led to the Gordon/Howell report began in fact in the early 1950s against the background of fear of communism and a dread that higher education would not produce executives for businesses and administration of sufficient quality to assure US supremacy over the Soviet rival. The Ford Foundation's role in ‘holding back the flow’ of communism extended beyond the US, since it contributed to US aid to allies. For more on the action of the Ford Foundation in Europe between 1950 and 1970, see Gemelli and MacLeod (2003).

The Carnegie foundation was set up by Andrew Carnegie and Henry Pritchett in 1905. Originally, the aim was to create a fund to pay a pension to retired university professors. Under the influence of its first president Henri Pritchett, the Carnegie foundation published many reports intended to guide developments in higher education (the Flexner report on medical studies, the Reed report on law studies, etc). The Carnegie foundation was also a founder member of the National Bureau for Economic Research (Lagemann, 1989).

The Carnegie foundation participated relatively little in the reform of business studies, for, in the early 1960s, the foundation was in a difficult financial situation, as it had to cover the deficit on the university professors' complementary pension fund it had helped to set up.

While all business disciplines benefited from the accent on research, it should be noted that accounting is one of the disciplines for which the effect of the Gordon/Howell and Pierson reports took the longest to be established. Accounting benefited from no intervention other than those associated with the reports, whereas other disciplines such as operational research (Singhal et al., 2007) and human resources (Somers, 1966) were the targets of government-financed incentive programmes.

Anthony Hopwood, although he does not belong to the positivist stream, was also educated at the University of Chicago.

Source: http://fisher.osu.edu/Departments/Accounting-and-MIS/Hall-of-Fame/Membership-in-Hall/William-Henry-Beaver/

Stephen Zeff gained his PhD at the University of Michigan in 1962 for a thesis on a typically ‘normative’ problem (‘A Critical Examination of the Orientation Postulate in Accounting, with Particular Attention to Its Historical Development’), source: http://fisher.osu.edu/Departments/Accounting-and-MIS/Hall-of-Fame/Membership-in-Hall/Stephen-Addam-Zeff.

We are indebted to one of our reviewers for this suggestion.

The increasing influence in the US of ex ante theorisation on accounting standardisation is visible from the 1970s, when the normative current underway was eclipsed in the university galaxy. Some academics found a way to retain intellectual influence through participation in the work of the Financial Accounting Standards Board, founded in 1973: the desire to develop a theoretical basis for standards was to be illustrated in the development of conceptual frameworks used to define the quality of accounting information, in accordance with the objectives of its users. Accounting standards would result from objectives set for this reporting, and guide the establishment of accounting practices with them.

It should be pointed out (Gaffikin, 2003, p. 300) that this term was invented by empirical researchers who were critical of the normative approach, particularly Dopuch and Revsine (1973).