Carolyn M Callahan
University of Arkansas
Susan F Haka
Michigan State University
Abstract: Common accounting knowledge, knowledge about what others know about accounting, is critical for business operations. Yet, little is known about how a society acquires common accounting knowledge. This study explores how common accounting knowledge is created by focusing on the diffusion of discounted cash flow (DCF) capital budgeting methods throughout U.S. firms. Based on the organizational sciences and economics diffusion literatures, we develop and test models of the temporal and cross sectional determinants associated with the environmental supply and organizational demand for the diffusion of DCF knowledge. Our results suggest that available information sources, low cost information processing procedures and opportunities to network are associated with the supply of DCF common knowledge. Organizational demand for DCF is related to characteristics of the firms investment opportunity set, the opportunity to obtain DCF knowledge via internal champions, and firm size. Finally, to address a common criticism that researchers fail to examine subsequent performance of new accounting procedure implementations, our results show that higher average sales growth and more debt capacity are associated with benefits from adopting DCF procedures.
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