Accounting choice, market failure, and regulation

Michael G. Keenan (Department of Accounting and Finance, University of Auckland, Auckland, New Zealand)

Pacific Accounting Review

ISSN: 0114-0582

Publication date: 13 September 2011

Abstract

Purpose

The purpose of this paper is to explain the adoption of consolidated accounting for New Zealand holding companies during the period 1946‐1957.

Design/methodology/approach

An explanatory, multiple‐case, holistic case study is used to explain the relative increase in consolidated accounting adoption in New Zealand following passage of the Companies Act 1955, in spite of that accounting choice remaining voluntary under the legislation.

Findings

The explanation is subjected to replication tests for explanatory case studies, and is supported by the data from all 25 cases satisfying the criterion for inclusion in the study.

Originality/value

The explanation differs from the micro‐economic explanations of accounting choice in terms of firm characteristics which are generated within the positive accounting research paradigm. It utilizes findings from research in the economics of standardization which show that mechanisms for co‐ordinating the behaviour of market participants enable them to capture benefits of market externalities which would otherwise be unavailable because of market failure. The explanation is that: the low rate of pre‐legislation consolidated accounting adoption was due to a market failure around the accounting information which rendered unilateral adoption generally uneconomic; and the post‐legislation surge in adoption was due to passage of the Act resolving the market failure by overcoming a co‐ordination problem for potential adopters, enabling them to realise positive network effects and, therewith, net benefits of adoption.

Keywords

Citation

Keenan, M. (2011), "Accounting choice, market failure, and regulation", Pacific Accounting Review, Vol. 23 No. 2, pp. 101-121. https://doi.org/10.1108/01140581111163953

Download as .RIS

Publisher

:

Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited

Please note you might not have access to this content

You may be able to access this content by login via Shibboleth, Open Athens or with your Emerald account.
If you would like to contact us about accessing this content, click the button and fill out the form.
To rent this content from Deepdyve, please click the button.