Article2011

Determinants of different accounting methods choice in Tanzania

Nelson Maina Waweru · Ntui Ponsian · Musa Mangena

33 citations0/0 files storedJournal of Accounting in Emerging Economies

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Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting Corporate Governance and Financial Management

Abstract

Purpose The purpose of this paper is to examine the factors that determine the choice of multiple accounting methods in Tanzania. The study investigates managers' decisions to choose accounting methods in a positive accounting theory perspective using panel data covering 60 years from 15 companies listed on the Dar es Salaam Stock Exchange. Design/methodology/approach Data were extracted from the companies' annual reports. Possible determinants of the choice of accounting methods are identified based on the positive accounting theory, including firm size, leverage, internal financing, proportion of non‐executive directors, ownership dilution, and labour force intensity. The study then utilises multiple regression analysis to determine the significant factors influencing the manager's choice of accounting methods. Findings The results show that the significant factors are company size, internal financing, proportion of non‐executive directors, and labour force. Contrary to the outcome of prior studies, the authors found that company size and internal financing are positively related with income strategy. The study proves statistically that there is a strong association between choice of accounting methods and income strategy. Originality/value The paper makes several contributions to the body of knowledge. First, in the Tanzanian context, it determines the factors which affect choice of accounting methods. Second, the study identifies the proportion of non‐executive directors as a new factor impinging on the choice of accounting policies. Finally, this study shows for the first time that the use of ratio of income‐increasing accounting policies to total number of accounting policies can be used as a dependent variable.

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References

1981Auditor size and audit quality 1985Positive Accounting Theory 1997An Empirical Analysis of the Relation between the Board of Director Composition and Financial Statement Fraud 2008International Accounting Standards and Accounting Quality 1990Positive Accounting Theory: A Ten Year Perspective.2001Empirical research on accounting choice 1995Stakeholders' implicit claims and accounting method choice 2000A cost benefit study of voluntary disclosure: some empirical evidence from French listed companies

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