Debating the ‘Evolution of Accounting Equation’: A Cross-Case Analysis Approach
Journal of Finance and Accounting
Volume 4, Issue 4, July 2016, Pages: 179-187
Received: May 20, 2016; Accepted: May 30, 2016; Published: Jun. 13, 2016
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Tibuhinda Ngonzi, Department of Accountancy & Finance, St. Augustine University of Tanzania, Mwanza, Tanzania
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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.
Accounting Equation, Cross-Case Analysis, Dynamic Model, Lagged Variables
To cite this article
Tibuhinda Ngonzi, Debating the ‘Evolution of Accounting Equation’: A Cross-Case Analysis Approach, Journal of Finance and Accounting. Vol. 4, No. 4, 2016, pp. 179-187. doi: 10.11648/j.jfa.20160404.13
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