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Debating the ‘Evolution of Accounting Equation’: A Cross-Case Analysis Approach

Received: 20 May 2016     Accepted: 30 May 2016     Published: 13 June 2016
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Abstract

This paper is an interrogation of the applicability of the recently introduced ‘new form of accounting equation’ and a ‘dynamic approach to accounting for capital structure’ (JFA 2013: 1(44) 55-63). It explicates the issues related to the methodological foundations at the base of the model specification and the estimated parameters. It goes on to conduct a cross-case analysis methodological approach to the same set of empirical data as a triangulation process. The outcomes confirm that the provided empirical evidence is not sufficient to demonstrate the pegging of the rate of change of equity and liabilities with respect to the change of assets to 36% and 64% values respectively. Rather this paper’s findings indicate that in the long term companies have used retained earnings and reserves to expel debt as a strategy to keep their debt levels low, except for firms with accumulated losses or excessive deficit. This paper also finds that firms have maintained certain debt levels but not maintained the logic suggested by the pay-off theory, and that the perking order was demonstrated through long-term adjustment process. This paper concludes that the new form of accounting equation is not pragmatically viable. The paper proceeds to make a contribution by developing a predictive dynamic model for capital structure based on lagged variables.

Published in Journal of Finance and Accounting (Volume 4, Issue 4)
DOI 10.11648/j.jfa.20160404.13
Page(s) 179-187
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2016. Published by Science Publishing Group

Keywords

Accounting Equation, Cross-Case Analysis, Dynamic Model, Lagged Variables

References
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[3] Chen, J. J. (2004). Determinants of capital structure of Chinese-listed companies. Journal of Business Research, 57 (March 2003), 1341–1351. doi:10.1016/S0148-2963(03)00070-5.
[4] de Jong, A., Kabir, R., & Nguyen, T. T. (2008). Capital structure around the world: The roles of firm- and country-specific determinants. Journal of Banking and Finance, 32, 1954–1969. doi:10.1016/j.jbankfin.2007.12.034.
[5] Eisenhardt, K. M. (1989). Building Theories from Case Study Research. Academy of Management Review, 14(4), 532–550.
[6] Gharaibeh, A. M. (2015). The Determinants of Capital Structure: Empirical Evidence from Cuwait. European Journal of Business, Economics and Accountancy, 3(6), 1–25. Retrieved from http://www.idpublications.org/wp-content/uploads/2015/09/THE-DETERMINANTS-OF-CAPITAL-STRUCTURE-EMPIRICAL-EVIDENCE-FROM-KUWAIT.pdf
[7] Hackbarth, D., Hennessy, C. a., & Leland, H. E. (2007). Can the trade-off theory explain debt structure? Review of Financial Studies, 20, 1389–1428. doi:10.1093/revfin/hhl047.
[8] Khan, S., & VanWynsberghe, R. (2008, January 31). Cultivating the Under-Mined: Cross-Case Analysis as Knowledge Mobilization. Forum Qualitative Sozialforschung / Forum: Qualitative Social Research. Retrieved from http://www.qualitative-research.net/index.php/fqs/article/view/334/729
[9] Myers, S. C. (1984). The Capital Structure Puzzle. The Journal of Finance, 39(3), 575–592.
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[11] Myers, S. C., & Majluf, N. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13, 187–221.
[12] Ntui, P. P. (2013). Evolution of Accounting Equation: evidence of companies quoted on Dar es Salaam stock exchange - Tanzania. Journal of Finance and Accounting, 1(4), 55–63. doi:10.11648/j.jfa.20130104.11.
[13] Phillips, F., & Heiser, L. (2011). A Field Experiment Examining the Effects of Accounting Equation Emphasis and Transaction Scope on Students Learning to Journalize, 26(4), 681–699. doi:10.2308/iace-50051.
[14] Qian, Y., Tian, Y., & Wirjanto, T. S. (2009). Do Chinese publicly listed companies adjust their capital structure toward a target level? China Economic Review, 20(4), 662–676. doi:10.1016/j.chieco.2009.06.001.
[15] Rowlands, B. (2005). Grounded in Practice: Using Interpretive Research to Build Theory. The Electronic Journal of Business Research Methodology, 3(1), 81–92.
[16] Serrasqueiro, Z., & Nunes, P. (2008). Determinants of Capital Structure: Comparison of Empirical Evidence From the Use of Different Estimators. Journal of Applied Economics, 5(1), 14–29. Retrieved from http://www2.southeastern.edu/orgs/ijae/index_files/IJAE MARCH 2008 NUNES IJAE_ARTICLE_FINAL VERSION 6-1-08.pdf
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  • APA Style

    Tibuhinda Ngonzi. (2016). Debating the ‘Evolution of Accounting Equation’: A Cross-Case Analysis Approach. Journal of Finance and Accounting, 4(4), 179-187. https://doi.org/10.11648/j.jfa.20160404.13

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    ACS Style

    Tibuhinda Ngonzi. Debating the ‘Evolution of Accounting Equation’: A Cross-Case Analysis Approach. J. Finance Account. 2016, 4(4), 179-187. doi: 10.11648/j.jfa.20160404.13

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    AMA Style

    Tibuhinda Ngonzi. Debating the ‘Evolution of Accounting Equation’: A Cross-Case Analysis Approach. J Finance Account. 2016;4(4):179-187. doi: 10.11648/j.jfa.20160404.13

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  • @article{10.11648/j.jfa.20160404.13,
      author = {Tibuhinda Ngonzi},
      title = {Debating the ‘Evolution of Accounting Equation’: A Cross-Case Analysis Approach},
      journal = {Journal of Finance and Accounting},
      volume = {4},
      number = {4},
      pages = {179-187},
      doi = {10.11648/j.jfa.20160404.13},
      url = {https://doi.org/10.11648/j.jfa.20160404.13},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20160404.13},
      abstract = {This paper is an interrogation of the applicability of the recently introduced ‘new form of accounting equation’ and a ‘dynamic approach to accounting for capital structure’ (JFA 2013: 1(44) 55-63). It explicates the issues related to the methodological foundations at the base of the model specification and the estimated parameters. It goes on to conduct a cross-case analysis methodological approach to the same set of empirical data as a triangulation process. The outcomes confirm that the provided empirical evidence is not sufficient to demonstrate the pegging of the rate of change of equity and liabilities with respect to the change of assets to 36% and 64% values respectively. Rather this paper’s findings indicate that in the long term companies have used retained earnings and reserves to expel debt as a strategy to keep their debt levels low, except for firms with accumulated losses or excessive deficit. This paper also finds that firms have maintained certain debt levels but not maintained the logic suggested by the pay-off theory, and that the perking order was demonstrated through long-term adjustment process. This paper concludes that the new form of accounting equation is not pragmatically viable. The paper proceeds to make a contribution by developing a predictive dynamic model for capital structure based on lagged variables.},
     year = {2016}
    }
    

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    T2  - Journal of Finance and Accounting
    JF  - Journal of Finance and Accounting
    JO  - Journal of Finance and Accounting
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    UR  - https://doi.org/10.11648/j.jfa.20160404.13
    AB  - This paper is an interrogation of the applicability of the recently introduced ‘new form of accounting equation’ and a ‘dynamic approach to accounting for capital structure’ (JFA 2013: 1(44) 55-63). It explicates the issues related to the methodological foundations at the base of the model specification and the estimated parameters. It goes on to conduct a cross-case analysis methodological approach to the same set of empirical data as a triangulation process. The outcomes confirm that the provided empirical evidence is not sufficient to demonstrate the pegging of the rate of change of equity and liabilities with respect to the change of assets to 36% and 64% values respectively. Rather this paper’s findings indicate that in the long term companies have used retained earnings and reserves to expel debt as a strategy to keep their debt levels low, except for firms with accumulated losses or excessive deficit. This paper also finds that firms have maintained certain debt levels but not maintained the logic suggested by the pay-off theory, and that the perking order was demonstrated through long-term adjustment process. This paper concludes that the new form of accounting equation is not pragmatically viable. The paper proceeds to make a contribution by developing a predictive dynamic model for capital structure based on lagged variables.
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Author Information
  • Department of Accountancy & Finance, St. Augustine University of Tanzania, Mwanza, Tanzania

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