The effect of owner versus management control on the choice of accounting methods

Dan S. Dhaliwal, Gerald L. Salamon, E. Dan Smith

Research output: Contribution to journalArticle

138 Scopus citations

Abstract

This paper examines the relationship between the ownership control status of firms and the accounting methods they adopt. The arguments of Watts and Zimmerman's positive theory are integrated with those of managerial economists to generate the prediction that management controlled firms are more likely than owner controlled firms to adopt accounting methods which increase reported earnings. This prediction is inconsistent with Fama's hypothesis that the market for managerial talent will prevent management controlled firms from acting differently than owner controlled firms. This paper compares the depreciation methods used by a sample of management and owner controlled firms for financial reporting purposes. The comparison considers and controls for the factors of firm size, leverage, and the depreciation method used for tax reporting purposes. The comparison reveals that there is a significant difference in the depreciation methods adopted by management controlled and owner controlled firms for financial reporting purposes.

Original languageEnglish (US)
Pages (from-to)41-53
Number of pages13
JournalJournal of Accounting and Economics
Volume4
Issue number1
DOIs
StatePublished - Jul 1982

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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