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A Two-Stage Model of Decision-Making over Financial Reporting Regimes and Techniques: Analysis and UK Case Studies

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  • Yu-Lin Hsu
  • Gavin C. Reid

Abstract

This paper develops a new two-stage decision model to explain the choices of financial reporting regimes (e.g. IFRS or UK GAAP) and techniques (e.g. valuing intangibles, by cost, income or market methods) for UK companies. The theoretical framework is based on the choice theory of orderings (Lex and CoLex) and is expressed in decision trees which capture firms’ actions, based on calibrated benefits and costs. The decision-making processes are examined through three UK empirical case studies (one private and two public firms), that expound their decision trees, and explain their decisions. We probe the rationale of their decisions using field-work investigation methods, through which we develop a ‘stated preference’ metric of choice, which allows us to interpret how decisions are made, and how they differ: over time (notably when regime changes are being implemented e.g. the emergence of New UK GAAP post-2015); and across firms (where factors like ease of execution and the quality and quantity of information needed for decisions, are shown to play a large part).

Suggested Citation

  • Yu-Lin Hsu & Gavin C. Reid, 2021. "A Two-Stage Model of Decision-Making over Financial Reporting Regimes and Techniques: Analysis and UK Case Studies," Working Papers wp529, Centre for Business Research, University of Cambridge.
    • Handle: RePEc:cbr:cbrwps:wp529
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    File URL: https://www.jbs.cam.ac.uk/cbrwp529/
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    More about this item

    Keywords

    IFRS; case studies; decision making; preferences; accounting;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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