Ok, I think it might help me decide what I want to do if I scribble down some of my many wild ideas for research topics and see if any sense comes out of this.
1. I think that climate change is one of, if not the most, important problems of our generation. It is possibly one of the biggest and most direct ways that I can see myself bringing positive change to the world through accounting. Financial markets are one of the largest driving forces behind the destruction of our planet's climate and natural resources. This is because financial markets do not incorporate natural resources into financial information. They are treated as externalities. When a company pollutes or uses up natural resources, these costs do no show up as expenses on the company's financial statements. If these costs were taken into account, investors would have more of the necessary information needed to allocate resources towards sustainable activities instead of investing in business activities that create profit by externalizing costs onto the environment. In short, if companies were to internalize environmental externalities, they would then manage these costs. In order to internalize these costs, we must be able to measure, analyze, and report what these costs are.
- Strenghs: Very important. Growing field with lots of room for potential. Becoming a more relevant area as global warming gets worse.
- Weakness: I know very little about this. I have no previous competitive advantage. This is not an established area of research. Will be hard to get published and also to find traction among ASU faculty.
2. I guess that, if I step back and take a big picture view, one of the most interesting aspects of accounting for me is that accounting is a snapshot of reality. Without stepping into the realm of non-financial/environmental issues, there are many areas of financial reporting that may not currently represent economic reality very accurately. There are two areas, one a balance sheet measure, and one an income statement measure, that are of interest to me. On the balance sheet, I think that increasingly intellectual capital and intangibles are major sources of future economic value that are not captured in the financial statements. Perhaps of even more importance to investors, it also appears that earnings do not capture very much of the information that explains stock price movements. Based on the paper that we read by Lev, earnings only explains a very very small amount of the R-squared in stock price variability. I think that investors might be able to make more efficient resource allocations if they had more accurate/relevant earnings information to base their investment decisions on. I also find it interesting that both of these issues are issues that Prof. Lev is interested in. I should read more of his research. As far as the earnings question, i think I am most interested in how investors use earnings information to make decisions (e.g. what adjustments do they make?) and also what affect differences in accounting methods have on the usefulness of earnings information (e.g. is one method more useful to investors than the other? are there better methods that we are not using that could be more useful?)
Strengths - Very mainstream. Especially the earnings question. Very interesting problem. I understand at least a little bit about it from my background. I have a fair amount of institutional knowledge of US GAAP if I want to research GAAP alternatives. I am also interested in standard setting and I think it would be great if I could help develop useful standards. Prof. Lev is already interested in many of the things I am interested in. I could contact him and possibly have a mentor in my pursuit.
Weaknesses - Very crowded field. It would be hard to stand out. Do I have any new ideas to bring to the table that people have not already tried? Might necessitate learning a lot of quantitative and finance skills that may not be my strong suit. There is a chance to get bogged down in the details of the market and end up doing research that is not interesting or helpful. Does not have as direct of an impact for creating positive change as trying to save the environment from climate change.
3. Methodological interests: Axelrod's "evolution of cooperation," and computer/Monte Carlo simulations. I really like Axelrod's approach to game theory and cooperation. I wonder if there are any applications of his model in accounting settings. This is related in my mind to the Monte Carlo methodology. Axelrod uses a agent-based computer simulation to conduct his research on cooperation and show how cooperation can evolve in competitive settings. Monte Carlo methods are also computer simulations.
Strengths- I have a computer science degree. I like programming. I almost became a programmer instead of an accountant. Maybe I can use that competitive advantage to approach accounting problems from a different angle than other people. I also like the evolution aspect of Axelrod's research. It seems that evolution is a very powerful mechanism that shows up as a plausible explanation for a lot of phenomena in the world. Maybe there are accounting/market phenomena that have evolutionary explanations also. If other people have approached my topical interests from traditional points of view already, maybe no one has taken these methodological approaches yet and I can bring something new to the table. Another advantage to these methods is that they do not require running experiments using people, which can be unreliable.
Weaknesses - I enjoyed programming in college, but I have no evidence that I really do have a competitive advantage in this method. It seems that many accounting PhDs know how to program. Many of them may be far better programmers than I am. I also do not know much about these methods, especially monte carlo methods. There is so so much to learn. There are many books and classes just about these methods. While I think i would be fairly strong in simulation design, I might struggle a lot with the mathematics and quantitative mechanics of developing these simulations. My weak quant skills might actually make this a terrible path for me to pursue.
Ok, very tired for now, but i think that was a good start.
Questions:
- Is there a simple mission statement that links all of these things together?
- Are there any good ideas from these topics that I could use for my literature review or event study this semester?
