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Using case-based decision support systems for accounting choices (CBDSS): an experimental investigation
N. Wongpinunwatana and K. Ratanaubol
AbstractThe primary objective of this research is to investigate the impact of case-based decision support systems on decision makers' certainty in their selection when using case-based decision support systems for accounting choices emphasizing depreciation methods. Two case-based decision support systems (a plain case-based decision support system and a traditional case-based decision support system) were developed. A laboratory experiment was performed with one hundred and four graduate students studying for a Masters degree in accounting. The results suggested that the effects of asymmetries in the distribution of information and in information processing on certainty in decision making was significant for a traditional case-based decision support system. However, the decision makers perceived value of information moderated the relationship between asymmetries in the processing of information and certainty in decision making. Index Terms Information asymmetry; Accounting choices; Depreciation methods; Decision support systems; Case-based reasoning; Case-based decision support systems
1 INTRODUCTION
revious research related to accounting choices have been conducted generally on the assumption that managers make accounting choices in order to influence an outcome beneficial to the firms or themselves [14]. Fields et al. [14] classify the accounting choice literature into three groups: agency costs, information asymmetries, and externalities affecting non-contracting parties. First, agency costs are generally related to contractual issues such as compensation plans, debt contracts and bond covenants. The examples of research in this agency costs are [9, 20, 22, 41, 47]. Second, information asymmetries generally refer to the relationship between the better informed (managers) and the less informed (investors). In addition, the literature examines the way accounting methods affect equity valuation or the cost of capital. Examples of research in these information asymmetries are [2, 13, 35]. Finally, other externalities are generally related to third-party contractual and non-contractual relations. Normally, firms select accounting methods not only to reduce or to defer taxes but also to avoid potential regulation or political costs. Past research in these other externalities has been done by [23, 26]. The research results, however, are of varying consistency. For depreciation method choices, leverage and size are key determinants of accounting choices [11, 22, 36, 47]. The survey on depreciation methods of some companies listed in the Stock Exchange of Thailand (SET) during
2001 and 2011 is showed in Table 1. This survey selected only 6 sectors: packaging, automotive, petrochemicals and chemicals, construction materials, food and beverage, and home and office products. The selection criteria were as follows: (1) the companies in these sectors had to have invested heavily in machinery to manufacture products for their normal operation (2) the machines should have been of high value with high depreciation, thereby affecting companies operating income. In addition, only listed companies which had a complete 10-year record of financial statements (from 2001-2011) were selected. In total, 74 of all 476 listed companies were selected. This research collected the companies depreciation methods from notes to financial statements. The data in table 1 shows that almost all listed companies adopted straight-line depreciation (SLD) as a depreciation accounting method in order to compile with depreciation announcement from the Revenue Department of Ministry of Finance. In other words, they selected SLD to avoid regulatory intervention. However, some listed companies apply other depreciation accounting methods (i.e., double declining balance (DDB) and sum of the years digits (SYD). Recently, Thai Financial Reporting Standard No. 16 Property, Plant and Equipment issued by the Federation of Accounting Professions have suggested all companies in Thailand use depreciation methods which reveals companies real performance.
N. Wongpinunwatana is with MIS department, Thammasat Business School, Thammasat University, Bangkok, 10200, Thailand. K. Ratanaubol is with Accounting department, Thammasat Business School, Thammasat University, Bangkok, 10200, Thailand.
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Sector
Automotive Construction Materials Food and Beverage Packaging Petrochemicals and chemicals Home and office products
Percentage of companies using each depreciation method by sector from 2001-2011 SLD DDB SYD 90.48 4.76 4.76 100 80.00 16.67 3.33 92.86 85.71 14.29 83.33 16.67 -
Notes: Most companies used DDB or SYD for assets bought before 1990. Only one company, which was in the Food and Beverage sector, used SYD for all of its machines.
The argument of this study is that if decision makers (who do not intend to manipulate financial statement information) have more information on their accounting choices, they should employ the choice which will indicate true company performance. Furthermore, Francis [15] suggests that future research should (1) provide more evidence on the costs and benefits of the implications of each accounting choice (2) appropriately examine one choice to the exclusion of others and (3) improve research designs and methods. Studies into this have been carried out mainly by [5, 30]. In addition, few studies have been conducted to investigate the effect of information asymmetry and perceived value of information on accounting choices. In this sense, the main aim of this research is to determine whether information on company performance provided by case-based decision support systems (CBDSS) can have a significant impact on decision makers certainty in selecting accounting choice, especially on depreciation methods. There are also a few studies on integrating case-based reasoning (CBR) into the architecture of decision support systems (DSS) [28]. The CBDSS, as an information system has been seen as a major means for companies to increase informative real performance in the eyes of decision makers. Normally, information systems are designed, implemented or used to provide information [19].
of the user [12]. The system has been recognized as a means for formulating better problem-solving processes and improving decision quality during the process of decision making [3, 12, 17, 18, 28]. Four types of support that can be provided to decision makers are (1) passive support by allowing decision makers to make autonomous decisions (2) traditional support by meshing with decisions to improve decision making (3) extended support by actively suggesting solutions for decision makers and (4) normative support by dominating the whole decision process, while managers provide input and specifications [12]. A Case-based reasoning system (CBR) is one type of artificial intelligence system designed to perform like an expert in a specific area [29]. Case-based reasoning represents knowledge in the form of cases. The contents of the cases are stored directly in a case base [46]. To find solutions, case-based reasoning performs analogical reasoning by finding previous cases similar to the present problem and then adapting the previous solutions to fit the current problem. The quality of case-based reasoning's solutions depends on three fundamental factors [21, 27]: (1) the number of well-defined cases stored in the system; (2) the ability of the system to recall experiences by using an index and to interpret the new situation in terms of those experiences; and (3) the adaptation of an old solution to meet the demands of a new situation. Some case-based reasoning systems also possess the ability to evaluate and adapt experiences to avoid repeating past mistakes [27]. Meanwhile, a case-based decision support system (CBDSS) integrates CBR into DSS to enhance problem-solving and decision making. CBR helps solve problems using reasonable knowledge from past cases while DSS is used to help solve problems within a dynamic environment [28].
2 THEORETICAL BACKGROUND
2.1 Case-based Decision Support System
A Decision Support System (DSS) is a system intended to support managerial decision-makers in semi-structured decision scenarios [28, 40]. DSS typically (1) aim at the less well structured, under-specified problems that upper-level managers typically face (2) combine the use of models or analytic techniques with traditional data access and retrieval functions (3) focus on features that make them easy to use in an interactive non-computer mode and (4) are flexible and adaptable to accommodate changes in environment and decision making approaches
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the task is considered to be [4]. The greater the clarity of the three elements, the less complex the task is considered. The amount of input is measured by the number of alternatives and the number of cues per alternative. Redundancy of the cues, however, can reduce the amount of input. The clarity of input refers to the specification or measurement of the relevant cues. The matching between presented cues and stored cues in memory, and the presentation of information in the form of graphics can also increase the clarity of input. The amount of processing is measured by the number of steps or procedures that have to be executed to solve a problem. Normally, the amount of processing also depends on the amount of input. The clarity of processing is determined by how well the procedure used to solve the problem is specified. The amount of output is the number of goals achieved or solutions per alternative, while the clarity of output is the degree to which a specific goal can be achieved. Depreciation choice tasks typically require only one judgment and have a definite goal or standard by which to judge the output. For example, the goal of the choice is to judge whether the decision maker should select SLD, DDB, or SYD. Furthermore, the input for calculating return on asset (ROA) also is definite defined. The output and input element does not vary substantially in various depreciation choice tasks. Therefore, the output and input elements are treated equally for the three depreciations in this research. Only processing complexity varies.
subjective value of information is based on representativeness, availability, and adjustment and anchoring (or heuristics). Perceived value of information is the worth that information has in the mind of the decision maker. In other words, the decision maker has an internal feeling for how much certain information is worth to him/her.
Information asymmetry [31] makes it very difficult for investors to assess true company performance before investing in those company stocks. Moreover, the more difficult it is for investors to assess real company performance prior to investment and the less they know about the business of selling stocks, the more likely they are to rely on signals to form expectations about real performance [24, 38, 42]. CBDSS is one of the primary means that businesses can use to signal companies real performance to investors. Some secondary data studies have found that providing clear company performance serves to reduce information asymmetry and increase investment [25]. While interacting with the traditional
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case-based decision support system, the decision maker conveys an amount of information more precise than the plain case-based decision support system. With plain case-based decision making, the decision maker requires a higher level of information processing, which may make it easier for him/her to exceed the limits of his/her capacity. Hence, this study proposes the following: H1: When presented with a case-based decision support system, students using a traditional case-based decision support system have more certainty in their decisions than students using a plain case-based decision support system. There are limits to the amount of information the human mind can effectively absorb and process [39]. The decision making quality declines while the decision maker has to process rich information, especially when those limits are exceeded (called information overload). To help decision makers to work their way through excessive information, the traditional case-based decision support system provides information filtering mechanisms that filter out irrelevant information, leaving only relevant data. Without such filtering systems, the decision maker may perceive a higher degree of information overload. Moreover, when individual receives information from case-based decision support systems, he or she will perceive the value of the information which in turn will enhance their certainty in their decisions. Hence, this study proposes that: H2: When presented with case-based decision support systems, students certainty for both case-based decision support systems is negatively correlated with asymmetries in the processing of information. Perceived value of information can also influence certainty in decision making. Decision makers with different perceived value of information will have different certainty in decision making. Therefore, offering the same case-based decision support system to different decision makers also will not lead to the same certainty in decision making. Thus, this study hypothesizes that: H3: Students perceived value of information will moderate the relationship between asymmetries in the processing of information and certainty in decision making; with the same asymmetries in the processing of information, students with more perceived value of information will have more certainty in decision making.
decision on depreciation method, while the two case-based decision support systems were a plain case-based decision support system (plain CBDSS) and a traditional cased-based decision support system (traditional CBDSS). Participants for depreciation tasks were divided into two groups: participants in plain CBDSS and participants in traditional CBDSS.
4 RESEARCH METHOD
4.1 Research Design
A laboratory experiment was designed to gather data on which to test the hypotheses. The experimental design consisted of a task type with one level and two levels of case-based decision support systems. The task type was
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5 RESULTS
This section reports the results of assessing the variables with respect to the assumptions underlying the statistical tests and also reports the research results. A statistical package was used to evaluate the assumptions before proceeding with an analysis of variance (ANOVA) and interaction effects in regression suggested by [1, 7, 33, 34].
4.3 Participants
One hundred and four graduate students studying for the Masters degree in accounting at three universities in Thailand participated in this study. These students were selected because they represent accountants. In addition, some of them also work as accountants in the private and public sectors. As accountants, they may have a chance to provide information for accounting managers, who are responsible for selecting accounting choices. The experiment was included in the course outline as a CBDSS exercise worth ten percent of the total course grade. Students were informed that their scores depended on their participation in the CBDSS procedures for the full one hour as well as the quality of their answers to the questionnaire.
Items Gender: Male Female Age: 21-26 27-32 33-38 >39 Career: Audit Education Accounting Internal auditing Bank Other
Plain CBDSS 25.0 75.0 67.9 26.8 5.4 8.9 5.4 44.6 1.8 16.1 23.2
Traditional CBDSS 10.4 89.6 27.1 18.8 43.8 10.4 2.1 14.6 37.5 4.2 6.2 35.4
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level in the statistical tests. A p-value between 0.05 and 0.10 is generally deemed as marginally significant. H1 suggests that certainty in decision making is higher for traditional CBDSS than for plain CBDSS. The results of a one-way ANOVA in Table 3 indicate significance for the effect of CBDSS on the certainty of decision with a p-value of 0.031. Detail analysis of mean of certainty in decision making shows that the mean value for plain CBDSS was 3.268. Meanwhile, the mean value for traditional CBDSS was 3.688. The mean of certainty in decision making for traditional CBDSS was higher than that for plain CBDSS. The CBDSS appears to affect users' certainty in decision making. Thus, H1 is supported. This result is consistent with that obtained by [5] who found that asymmetries in the distribution of information affected decision quality. TABLE 3 EFFECTS OF CASE-BASED DECISION SUPPORT SYSTEMS ON
CERTAINTY IN DECISION
perceived value of information will have more certainty in decision making. The interpretation effects of two continuous predictor variables (asymmetries in the processing of information and perceived value of information) in Table 5 and fig. 4 indicate that certainty in decision making was affected by the interaction effect of perceived value of information on asymmetries in the processing of information. All the p-values of asymmetries in the processing of information, perceived value of information, and interaction effect of those two variables were 0.023, 0.000, and 0.007 respectively. In addition, the simple slope test of the variables indicates a significant relationship for those two variables. Hence, the results provide strong support for H3. TABLE 5 COEFFICIENTS OF INTERACTION EFFECTS ON CERTAINTY IN
DECISION MAKING
Model Constant Zscore (Asymmetries in the processing of information) Zscore (Perceived value of information) Zscore (Asymmetries in the processing of information) * Zscore (Perceived value of information)
Note: * p < 0.05
df 1 102 103
F Value 4.772
Sig 0.031*
H2 suggests that students certainty for both CBDSSs is negatively correlated with asymmetries in the processing of information. Statistical significant support was obtained for the effects of asymmetries in the processing of information on the certainty in decision making with a p-value of 0.000 (see Table 4). TABLE 4 EFFECT OF INTERACTION EFFECTS ON CERTAINTY IN
DECISION MAKING
df 3 100 103
F Value 12.690
Sig 0.000*
Detailed information of t test on asymmetries in the processing of information showed statistical significance with p = 0.023. In addition, the relationship between asymmetries in the processing of information and certainty in decision making is negative. Therefore, the results provide strong support for H2. H3 suggests that students perceived value of information will moderate the relationship between asymmetries in the processing of information and certainty in decision making; with the same asymmetries in the processing of information, students with more
Detailed analysis was performed with data on the selection of depreciation method choice. The results showed that 65.21 percent selected DDB and SYD instead of continuing to use SLD (the depreciation method applied by most listed companies) while 34.79 percent still continued to use SLD. A plausible reason may be that
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human decision makers generally do not make decisions based on the probability of success (or high return on assets (ROA) in this study), because the penalty of a vital decision that turns out to be wrong is normally substantial [12]. Though many participants found that traditional CBDSS provided useful information (ROA classified by company) for making decisions, some of them still wanted more information such as return on investment and other financial ratios.
6.1 Conclusions
To conclude, this research has contributed to knowledge in the following ways. First, it has developed an information asymmetries model of certainty in decision making of accounting choices, emphasizing depreciation methods. Second, it extended prior research on accounting choices by analyzing two types of asymmetries (asymmetries in the distribution of information and asymmetries in the processing of information). Third, this research investigated the perceived value of information which moderates the relationship between asymmetries in the processing of information and certainty in decision making. Finally, the results obtained from this research have statistical significance, supporting the hypothesis that asymmetries in the distribution of information affect the users' certainty in decision making. The research results also provide evidence that the perceived value of information moderates the relationship between asymmetries in the processing of information and certainty in decision making.
other important variables such as compensation and value of taxes have been omitted from the experimental manipulations. These variables may contribute to the low R2 obtained in this research. In addition, the subjects used in this experiment may have affected the empirical findings. Accounting managers working in listed companies may be more suitable subjects than graduate students studying for a Masters degree in accounting. Future research, therefore, should attempt different research methods. Second, studies could be conducted in areas related to the impact of CBDSS on decision making effectiveness. Some research suggests that there is some effect on certainty in decision making and the quality of decision making. Finally, other research methods such as case study research may be conducted to explain the willingness to change depreciation choices to reveal real performance.
ACKNOWLEDGMENT
The authors would like to thank Research Center of Thammasat Business School for financial support.
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