I read a scholarly Article, "ACCOUNTING CHANGE BEHAVIOR: THE RELATIONSHIP BETWEEN EARNINGS ADJUSTMENT AND FIRM-SPECIFIC EXPLANATORY FACTORS. AN EMPIRICAL ANALYSIS."
"What factors influence the choice of firms' accounting systems?" This is the key question of this journal. There are two different types of views to this question. First is "economic" view. This view is management belief that the cashflow influences the change in accounting behavior. In this view , factors related to the exposure of the firm to political costs, the firm's lending agreements, bonus compensation contracts, and the percentage of stock ownership held by management is assumed as relevant in explaining change in accounting behavior.
Second view is a "naive" view. This view is, also, management's belief in naive capital markets. This view assumes that the change in behavior is influenced by the earnings measurement. In this view, factors related to the firm's past and current earnings realizations are assumed in explaining change in accounting behaviors.
I think that the "economic" view is more reliable and trustworthy. The reason is that there are more factors that can explain the answer. However, since the two views are related closely. I think it would be better if the two views are combined.
Moses, Orrin Douglas. "Accounting Change Behavior: The Relationship between Earnings Adjustment and Firm-Specific Explanatory Factors. an Empirical Analysis." University of California, Los Angeles, 1983. United States -- California:ProQuest Dissertations & Theses (PQDT); ProQuest Dissertations & Theses A&I. Web. 10 Oct. 2012.
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