Accounting practice effectiveness and financial performance of Thai listed firms: mediating effects of decision making efficiency for tax management, competent resource allocation, and strategic planning success.

• Date: 01 January 2010
• Author: Hanpuwadal, Nupakorn

1. INTRODUCTION

   Accounting practice has an important role in establishing financial reporting and accounting information that external and internal users use to assess the firm's financial status and performance. It enables firms to control their various units (Moilanen, 2008), such as financial reporting present asset values, incomes, taxation expenses (Xiao, et. al, 1996). Thus, the view accounting is a tool for administering resources efficiently, supporting to rational decision making (Quattrone, 2009), and support administrator to strategic planning, task processing improvement, and performance evaluation. Further, Hall (2009) argued that the role of accounting information can support manager to knowledge development, managerial work, and form of communication. However, accounting practice focuses on obtaining answers to the needs of executive.

   During the last decade, changes in competition and production environment, changes in the cost structures of firms(Dixon, 1998), and the rapid development in advanced information technologies have been advocated as imposing pressures for change in accounting practice(Xiao et. al, 1996). It needs to meet the changing needs of managers. Thus, accounting must adapt efficiency for accounting practice to changing technology, method of production, and organization's structures, and business environments. For firm's competitive advantage and good financial performance, financial reporting and accounting information are used for planning, resources allocating and collective decision making for managers.

   Thailand has changed institute of professional and issued a new accounting conceptual framework and many new accounting standards. All of which follow closely to International accounting Standards (IAS). Issuing the new standards by adapting from International accounting Standards (IAS), the Federation of Accounting Professions adjusts some points in order to be suitable to Thai business environment. The changes in accounting standards may affect accounting practice effectiveness. It is interesting whether accounting practice effectiveness will increase or decrease because of such changes. Moreover, accounting practice effectiveness has less investigation in academic research and empirical testing.

   The concept of accounting has long been studied in professional accountants and their organizations present themselves as leaders of change. Prior researches concentrated to provide empirical evidence on accounting methods, techniques, ideas and practices (Napier, 2006). However, past research focus on accounting studied in the context of developed countries such as the European Union (Napier, 2006) and the United States of America. There were a few researches studied in the context of developing countries, especially Thailand. Moreover, Thailand was well-known for its scandal in accounting practice.

   Hence, four research questions are presented in this paper. Firstly, the key research question is how does accounting practice effectiveness affect decision making efficiency for tax management, competent resource allocation, and strategic planning success? Secondly, how do decision making efficiency for tax management, competent resource allocation, and strategic planning success influence financial performances? Thirdly, how do the impacts of accounting standard understanding, accountant's competency, and corporate culture excellence on accounting practice effectiveness? Lastly, how does moderator effect of information technology implementation influence the relationship between accounting practice effectiveness and its antecedences? To answer four research questions, four objectives are provided as follows: 1) to examine the relationship among accounting practice effectiveness and decision making efficiency for tax management, competent resources allocation, strategic planning success; 2) to examine the relationship among decision making efficiency for tax management, competent resources allocation, strategic planning success and financial performance; 3) to investigate whether the relationship among accounting standard understanding, accountant's competency, corporate culture excellence, and accounting practice effectiveness; 4) to determine whether the relationship is moderated by information technology implementation effects on accounting standard understanding, accountant's competency, corporate culture excellence and accounting practice effectiveness.

   This paper has theoretical implication that encompasses to test resource based view and information richness theory and adds literature of accounting practice effectiveness. Further, this paper investigates the concept of accounting standard understanding of organization, accountant's competency, and corporate culture to accounting practice effectiveness. In the context of practical contribution, the results of this study provide contribution not only to firm's management but also to educators whose concerning is about accounting practice effectiveness.

   The remainder of this paper is organized as follows. The first presents the theoretical foundation. The second presents literature review and hypothesis development are indicated in the followed section. The third explains the research design, data collection and variable measurements of all construct in the study. The fourth presents the results and discussion. The fifth shows the implication of this paper; the sixth shows the limitation and suggestion for future research. The conclusion is followed in the last section.

2. THEORETICAL FOUNDATION

   Resource based view (Eisenhardt and martin, 2000; Barney, 1991) and information richness theory (Chen and Tan, 2004) can explain existing accounting practice effectiveness. The context of resource based view (RBV) explains how firms achieve a competitive advantage and sustaining (Eisenhardt and martin, 2000; Barney, 1991). This research applies RBV in accounting practice effectiveness context to identify the cause of financial performance variables. The financial performance is viewed as contingent on competitiveness of accounting practice skills and resources by Barney (2001), Accounting practice resources and skills are considered a success when they help the accountant to formulate and developed efficiency, effectiveness, and economy (Bharadwai et al., 1993). Therefore, this case can be assumed that an accountant who has more resources and skills in accounting practice will succeed in accounting practice. Information richness theory explains information that influence to users' understanding to issue in a timely manner (Chen and Tan, 2004). This research applies information richness in accounting practice effectiveness context to accounting information that is used to focus mainly on decision making efficiency for tax management, resource allocation, strategic planning, and financial performance. Organization has information richness leading to enhance executive's understanding to economic events and support administering efficiently.

3. LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT

   With regard to the literature review on accounting practice effectiveness and supporting with resource based view and information richness theory, this paper proposes a conceptual model to empirical testing in the topic "accounting practice effectiveness and financial performance of Thai listed firms: mediating effects of decision making efficiency for tax management, competent resource allocation". This paper provides relevant literature review in four sections. First, the integrative review of accounting practice effectiveness. Second, it explains positively consequence of accounting practice effectiveness (decision making efficiency for tax management, competent resources allocation, and strategic planning success). Third, it illustrates the association among decision making efficiency for tax management, competent resources allocation, strategic planning success and financial performance. Finally, the antecedents of accounting practice effectiveness are illustrated. The full conceptual model is presented as below:

   3.1 Accounting Practices Effectiveness

   Accounting practice is the accounting process to collect, transform process, report, and disseminate reporting to users. Generally, accounting practice presents accounting information to organization for management (Hakansson and Lind, 2004) and it is a tool for efficient resource administration, and support appropriate decision making (Quattrone, 2009). Besides, accounting information evaluation is developed and it supports various objects such as subunits of organization, and event to be explained and evaluated performance in past, present and future. Thus, accounting has an influence on behavior and enhance knowledge of users, support establish cooperate for performance, monitor of administrator (Hakansson and Lind, 2004; Vosselman and Meer-Kooistra, 2009). Accounting approach has disciplinary and calculative practice (Quattrone, 2009), such as assess cost, resource and expense allocation method, and budgets have been implemented to support effective decision making and performance measuring (Chandler and Daems, 1979).

   This paper focuses on accounting practice effectiveness. A lot of academic researches define accounting in terms of intent of managers. However, based on the review of part studied as above, this study assumes that accounting practice effectiveness is defined as an outcome of accounting practice regarding accounting processes that are collation, transformation, explanation, analysis, dissemination of reporting, and accounting information sharing to managers supported by information reliability.

   This paper measures accounting practice effectiveness by using four dimensions which reflect accounting practice effectiveness encompass: adequate financial information integration, useful financial reporting establishment, effective financial reporting dissemination, and accounting...