Contagion vs. intrinsic factors of accounting policy choice.

摘要

I examine how a firm's accounting methods can be influenced by the choices of other firms, which I label contagion. I model accounting method choice as a combination of intrinsic propensities to adopt a method and contagion effects. I predict contagion of accounting methods occurs for two reasons: (1) adoption decisions of other firms are informative for the adoption decision and (2) prior adoptions change the net benefits of the decision. I test these predictions in the stock option expensing setting where firms had the choice to use the intrinsic or fair value method. Using a firm-level diffusion model, I document evidence consistent with my predictions. I also predict that the strength of contagion will vary based on the characteristics of the accounting choice. Specifically, I expect that the presence of direct cash flow effects of an accounting choice (e.g., tax effects) will be associated with less influence of contagion factors relative to accounting choices without any direct cash flow effects. I test these predictions in the inventory and depreciation method settings. Since inventory has a direct impact on taxes, due to the tax conformity rule, I expect contagion will be less influential in the accounting choice decision than in the depreciation setting. The data is consistent with this prediction. However, the prediction is across empirical settings, so I cannot provide a test of statistical significance. Thus any inferences must be made cautiously.