Herbert G. Hunt

An empirical examination of debt covenant restrictions and accounting-related debt proxies☆

Abstract Prior studies of discretionary accounting choices have generally relied on one or more proxy variables to measure closeness to debt covenant restrictions without actually examining the existence or extent of restrictive covenants. This study tests the validity of the most commonly used proxy, the debt–equity ratio, by examining its relation to actual debt covenant restrictions for a random sample of U.S. firms. The results indicate that several versions of the debt–equity ratio capture the existence and tightness of retained earnings restrictionsand the existence of net tangible asset and working capital restrictions, but are unrelated to four other covenant restrictions.

Agency theory as ideology: A comparative analysis based on critical legal theory and radical accounting☆

Abstract This paper explores the similarities in legal and accounting theory with reference to their foundations in neoclassical economics. Neoclassical legal theorists argue that governmental interference in employment should be minimized and that individual contractual arrangements are a superior means of resolving organizational conflict. Similarly, agency-based accounting researchers argue that the demand for accounting reports derives from, and should be based on, the equilibrium set of “free” market-determined contracts. Both critical legal theorists and radical accountants contend that the “market” concept and its theoretical derivatives are ideological constructs which obscure the biases of power inherent in economic organizations. When applied to organizational structure, critical theory and radical accounting mutually enrich the insights of the respective disciplines.

An institutional analysis of accounting growth and regulation in the United States

Abstract The accounting profession in the United States has experienced rapid growth in the past two decades, and growth is likely to continue in the foreseeable future. Although the U.S. Securities and Exchange Commission possesses explicit statutory authority to regulate accounting and financial reporting, the profession is largely self-regulated, an arrangement widely supported by the corporate business community. Yet no single current accounting theory provides a full understanding of these two very basic phenomena. This paper examines organizational models based on contractualism (agency theory and transaction cost analysis), hierarchy (radical) and Fligsteins “organizational fields” conception, and evaluates their application to the accounting process. It is proposed that institutions are central to an understanding of accounting growth and regulation. The essay then offers a theoretical critique based on the internal and external aspects of economic organizations.

FINANCIAL ANALYSTS’ VIEWS OF THE VALUE OF ENVIRONMENTAL INFORMATION

One question of interest to several different groups is whether capital markets value environmental information and, if so, to what extent this information is incorporated into security valuation models. This paper addresses these questions by reporting on a survey of financial analysts and other influential members of the financial community with respect to their knowledge of various types of environmental information and their use of this information in security analysis. The results, while exploratory in nature, indicate a surprising lack of knowledge among the respondents concerning various organizations and reporting initiatives that are well known in environmental circles. A pervasive theme running through the results suggests that while most analysts do not explicitly incorporate environmental variables into their evaluation models, for those that do, their focus is on downside risk rather than upside potential. The results suggest that the reluctance to make widespread use of environmental information is due, at least partly, to concern with the reliability of the available information. This suggests that more work needs to be done to communicate relevant and reliable environmental performance information to the investment community.

Corporate ownership and accounting choice: A critical analysis*

Recent studies have revealed a link between corporate ownership structure and accounting method choice, but no theory has specifically considered the role of accounting in legitimizing the activities of corporate managers in selecting accounting methods which potentially further their self-interest at the expense of owners, shareholders and employees. One possible theoretical model, that of agency theory, is not capable of incorporating institutional factors nor dealing with ideology. This paper advances a comparative theoretical framework to analyze the findings of the empirical research. Drawning on the critical legal notions of ideology and autonomy, two arguments are set forth. First, accounting information can be represented to the material advantage of those having control of the corporation. Second, for such representation to be effective, the information must have an ideological dimension. The representation, that is, cannot be overtly instrumental; rather, there are institutional constraints on a managers discretion to manipulate the accounting system. The methodological approach taken here goes beyond the empiricist perspective common in mainstream accounting research and offers a more comprehensive view of the accounting function and its social implications.

Accounting standards, health care, and retired American workers: An institutional critique

Abstract The Financial Accounting Standards Board in 1990 issued an accounting standard (SFAS 106) that requires U.S. companies to apply accrual accounting techniques to obligations arising from employee postretirement health care plans. Despite significant economic implications for current and future retirees, U.S. workers and labor groups were conspicuously absent from deliberations preceding the issuance of the standard. This paper critically examines, from an institutional perspective, how American workers were effectively denied a voice in the debate over their future health care benefits despite several avenues through which they can ostensibly express themselves.

How will fast-approaching global accounting standards affect U.S. firms?

After nearly a decade of debate, it looks like global accounting standards are now inevitable. If international standards are accepted for cross-border security filings, how will it affect U.S. accounting standards and securities regulation? And can the International Accounting Standards Committee (IASC) effectively harmonize global accounting standards?