Stakeholders' Implicit Claims and Accounting Method Choice

Abstract

This study adds to the literature that attempts to explain firms' accounting method choices by expanding the traditional set of independent variables to include those derived from implicit claims between the firm and its customers suppliers employees and short-term creditors. On large samples of surviving firms over five non-adjacent years we find that implicit claims variables explain on average 13% (and never less than 10%) of the cross-sectional variation in combined scores for inventory and depreciation methods. We find that our implicit claims variables remain incrementally significant when we include independent variables found to have explanatory power in prior studies (i.e. leverage bonus compensation tax and regulatory/political exposure variables). Taken together implicit claims and traditional variables explain on average 19% of the variation in combined scores for inventory and depreciation methods (and never less than 16.6%).