| Peer-Reviewed

Evolution of Accounting Equation: Evidence of Companies Quoted on Dar es Salaam Stock Exchange-Tanzania

Received: 9 November 2013     Published: 20 December 2013
Views:       Downloads:
Abstract

This paper attempts to explain how an accounting equation evolves overtime. The paper looks at the accounting equation by using trade off theory and positive accounting theory lenses. The accounting equation is viewed as living or dynamic and changes according to human behavior or managers of company’s behavior. Regression model and descriptive statistics are used to show the relationship between total assets, liabilities and owners’ equity. The model is then used to show new form of accounting equation, rates of change of liabilities and owners’ equity. In this paper the writer finds new approaches or looks at accounting equation, the rates of change of liabilities and capital in relation to assets and shows the proportion of the two components of assets i.e. liability 64% and capital 36% to the asset. Finally the researcher explains the constant term which is not explained by authors of accounting field. This paper shows for the first time new form of accounting equation, different rates of change for the two components of assets and finally proportions of the owners’ equity/ capital and liabilities components on assets.

Published in Journal of Finance and Accounting (Volume 1, Issue 4)
DOI 10.11648/j.jfa.20130104.11
Page(s) 55-63
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2013. Published by Science Publishing Group

Keywords

Accounting Equation, Capital Structure, Assets, Liabilities, Capital, Rates, Proportions, Tanzania

References
[1] Abor, J. and Biekpe, N. (2009). ‘How do we explain the capital structure of SMEs in sub-Saharan Africa? Evidence from Ghana’, Journal of Economic Studies, Vol. 36, Issue 1, pp. 83-97.
[2] Abor, J. (2007). ‘Corporate governance and financing decisions of Ghanaian listed firms’, Corporate Governance, Vol. 7, pp. 83-92.
[3] Al-Najjar, B. and Taylor, P. (2008). ‘The relationship between capital structure and ownership Structure new evidence from Jordanian panel data’, Managerial Finance, Vol. 34, Issue 12, pp. 919-933.
[4] Anderson, R. and Reeb, D. (2003). "Founding-family ownership, corporate diversification, and firm leverage", Journal of Law & Economics, Vol. 46, pp. 653-84.
[5] Anderson, R., Mansi, S. and Reeb, D. (2004). ‘Board characteristics, accounting report integrity and the cost of debt’, Journal of Accounting and Economics, Vol. 37.Issue 3, pp. 315-42.
[6] Bajaj, M., Chan, Y. and Dasgupta, S. (1998). ‘The relationship between ownership, financing decisions and firm performance: a signaling model’, International Economic Review, Vol. 39, Issue 3, pp. 723-44.
[7] Berger, A.N. and Bonaccorsi di Patti, E. (2006). ‘Capital structure and firm performance: a new approach to testing agency theory and an application to the banking industry’, Journal of Banking & Finance, Vol. 30, Issue 4, pp. 1065-102.
[8] Bertrand, M. and Mullainathan, S. (2003), ‘Enjoying the quiet life? Corporate governance and managerial preferences’, Journal of Political Economy, Vol. 111, pp. 1043-75.
[9] Bokpin, G. A. and Arko A. C. (2009). ‘Ownership structure, corporate governance and capital structure decisions of firms Empirical evidence from Ghana’, Studies in Economics and Finance, Vol. 26, Issue 4, pp. 246-256.
[10] BPP Learning Media (2009). Financial accounting: ACCA study text for exams in December 2009 to June 2010, BPP Learning media London.
[11] Brailsford, J., Timothy, B., Oliver, R. and Sandra, L. (2002). ‘On the relationship between ownership structure and capital structure’, Journal of Accounting and Finance, Vol. 42, pp. 1-26.
[12] Brav, A., Graham, J., Harvey, C. and Michaely, R. (2005), ‘Payout policy in the 21st century’, Journal of Financial Economics, Vol. 77, pp. 483-527.
[13] Bruno, F. and Mateus C. (2009). ‘Firms’ capital structure and the bankruptcy law design’, Journal of Financial Economic Policy, Vol. 1, Issue 3, pp. 264-275.
[14] Carnegie, G. D., Napier C. J. (1996). ‘Critical and interpretive histories: insights into accounting’s present and future through its past’, Accounting, Auditing & Accountability Journal, Vol. 9 Issue: 3, pp.7 – 39.
[15] Champion, D. (1999). ‘Finance: the joy of leverage’, Harvard Business Review, Vol. 77, pp. 19-22.
[16] Chatzkel, J. (2003). ‘The collapse of Enron and the role of intellectual capital’, Journal of Intellectual Capital, Vol. 4, Issue 2, pp.127 – 143.
[17] Cheng, S., Nagar, V. and Rajan, M. (2005). ‘Identifying control motives in managerial ownership: evidence from antitakeover legislation’, Review of Financial Studies, Vol. 18, pp. 636-72.
[18] Chiang, Y.A., Chang, P.C.A. and Hui, C.M.E. (2002). "Capital structure and profitability of the property and construction sectors in Hong Kong", Journal of Property Investment & Finance, Vol. 20 No. 6, pp. 434-53.
[19] Claessens, S., Djankov, S., Fan, J. and Lang, L. (2002). ‘Disentangling the incentive and entrenchment effects of large shareholdings’, Journal of Finance, American Finance Association, Vol. 57, Issue 6, pp. 2741-71.
[20] de Haas, R. and Peeters, M. (2004). ‘The dynamic adjustment towards target capital structures of firms in transition economies’, EBRD Working Paper No. 87, p. 32, available at: www. ebrd.com/pubs/econo/wp0087.pdf
[21] Driffield, N., Vidya, M. and Sarmistha, P. (2005). ‘How ownership structure affects capital structure and firm performance? Recent evidence from East Asia’, Finance 0505010, Economics Working Paper Archive EconWPA.
[22] Ebaid, I. E. (2009). ‘The impact of capital-structure choice on firm performance: empirical evidence from Egypt’, The Journal of Risk Finance, Vol. 10, Issue 5, pp. 477-487.
[23] Eldomiaty, T. (2007). ‘Determinants of corporate capital structure: evidence from an emerging economy’, International Journal of Commerce and Management, Vol. 17, pp. 25-43.
[24] Fama, E. and French, K. (1998). ‘Taxes, financing decisions, and firm value’, Journal of Finance, Vol. 53, pp. 819-43.
[25] Farhat, J., Cotei, C. and Abugri, B.A. (2006). ‘The pecking order hypothesis vs. the static trade-off theory under different institutional environments’, preliminary draft, p.39,availableat:http://wehner.tamu.edu/finc.www/seminar/papers/CovFinance31Jan2007.pdf
[26] Flannery, M., Rangan, J. and Kasturi, P. (2004). ‘Partial adjustment toward target capital structures’, AFA 2005 Philadelphia Meetings, p. 50, available at: http://ssrn.com/ abstract ¼ 467941
[27] Fosberg, R.H. (2004). ‘Agency problems and debt financing: leadership structure effects and Corporate Governance’, International Journal of Business in Society, Vol. 4, Issue 1, pp.31-8.
[28] Friend, I. and Lang, L. (1988). ‘An empirical test of the impact of managerial self interest on corporate capital structure’, Journal of Finance, Vol. 43, Issue 2, pp. 271-81.
[29] Gaud, P., Hoesli, M. and Bender, A. (2004). ‘Further evidence on debt-equity choice’, Research Paper No. 114, University of Geneve, Geneva, p. 38.
[30] Ghosh, C., Nag, R. and Sirmans, C. (2000). ‘The pricing of seasoned equity offerings: evidence from REITs’, Real Estate Economics, Vol. 28, pp. 363-84.
[31] Gleason, K., Mathur, L. and Mathur, I. (2000). ‘The interrelationship between culture, capital structure, and performance: evidence from European retailers’, Journal of Business Research, Vol. 50, pp. 185-91.
[32] Glen, J. and Pinto, B. (1994). ‘Debt or equity? How firms in developing countries choose", discussion paper, International Financial Corporation, Washington, DC.
[33] Graham, J.R. and Harvey, C. (2001), "The theory and practice of corporate finance: evidence from the field", Journal of Financial Economics, Vol. 60, pp. 187-243.
[34] Graham, J.R. and Harvey, C.R. (1999). ‘The theory and practice of corporate finance: evidence from the field’, AFA 2001 New Orleans, Duke University working paper, p. 48, available at: http://ssrn.com/abstract ¼ 220251.
[35] Grojer, J. (1993). ‘Employee Artefacts on the Balance Sheet: Model Illustration and Implications’, Journal of Human Resource Costing & Accounting, Vol. 2 Issue 1, pp.27 – 53.
[36] Huang, R. and Ritter, J.R. (2007). ‘Testing theories of capital structure and estimating the speed of adjustment’, p. 46, available at: http://ssrn.com/abstract ¼ 938564.
[37] Inoue, T. & Thomas, W. (1996). ‘The choice of accounting policy in Japan’, Journal of International Financial Management and Accounting, Vol. 7, Issue 1, pp. 1–23.
[38] Jackson, T. and Doris M. C. (1998). ‘A brief history of accounting for the translation of foreign currencies’, Journal of Management History (Archive), Vol. 4, Issue 2, pp.137 – 144.
[39] Jensen, M. (1986). ‘’Agency cost free cash flow, corporate finance, and takeovers’, American Economic Review, Vol. 76, pp. 323-9.
[40] Jensen, M. and Meckling, W. (1976). ‘The theory of the firm: managerial behavior, agency costs, and ownership structure’, Journal of Financial Economics, Vol. 3, pp. 305-60.
[41] Jo˜eveer, K. (2006). ‘Sources of capital structure – evidence from transition countries’, Working Paper Series, p. 29, available at: www.cerge-ei.cz/pdf/wp/Wp306.pdf.
[42] Ju, N., Parrino, R., Poteshman, A.M. and Weisbach, M.S. (2002). ‘Horses and rabbits? Optimal dynamic capital structure from shareholders and managers perspective’, p. 45, available at: http://ssrn.com/abstract ¼ 345821.
[43] Karadeniz, E., Kandir, S. Y., Balcilar M. and Onal, Y. B. (2009). ‘Determinants of capital structure: evidence from Turkish lodging Companies’, International Journal of Contemporary Hospitality Management, Vol. 21, Issue 5, pp. 594-609.
[44] Kilgore, A., Leahy, S., Mitchell, G. (1993). ‘The True and Fair View Concept: Evidence from Australia’, Asian Review of Accounting, Vol. 7, Issue 1, pp.96 – 111.
[45] Kim, W.S. and Sorensen, E.H. (1986). ‘Evidence on the impact of agency costs of debt in corporate debt policy’, Journal of Financial and Quantitative Analysis, Vol. 21, pp. 131-44.
[46] Klapper, L.F., Sarria-Allende, V. and Sulla, V. (2002). ‘Small- and medium-size enterprise financing in Eastern Europe’, World Bank Policy Research Working Paper No. 2933 available at: http://ssrn.com/abstract ¼ 636295
[47] Kyereboah, C. A. (2007). ‘The impact of capital structure on the performance of microfinance institutions’, The Journal of Risk Finance, Vol. 8, Issue 1, pp. 56-71.
[48] Leary, M.T. and Roberts, M.R. (2005). ‘Do firms rebalance their capital structure’, Journal of Finance, Vol. 60, Issue 6, pp. 2575-619.
[49] Litov, L.P. (2005). Corporate governance and financing policy: new evidence manuscript, Stern School of Business, New York University, New York, NY.
[50] Macintosh, N. B., Baker C. R. (2002). ‘A literary theory perspective on accounting: Towards heteroglossic accounting reports’, Accounting, Auditing & Accountability Journal, Vol. 15 Issue 2, pp.184 – 222.
[51] Mayer, C. and Sussman, O. (2004). ‘A new test of capital structure’, AFA 2005 Philadelphia Meetings, p. 47, available at: http://ssrn.com/abstract ¼ 643388
[52] Mehran, H. (1992), ‘Executive incentive plans, corporate control, and capital structure’, Journal of Financial and Quantitative Analysis, Vol. 27, pp. 539-60.
[53] Melis, A. (2007). ‘Financial Statements and Positive Accounting Theory: The Early Contribution of Aldo Amaduzzi’, Accounting, Business & Financial History, Vol. 17, Issue 1, pp. 53–62.
[54] Missonier-Piera, F. (2004). ‘Economic Determinants of Multiple Accounting Method Choices in a Swiss Context’, Journal of International Financial Management and Accounting, Vol. 15, Issue 2.
[55] Modigliani, F. and Miller, M. (1963). ‘Corporate income taxes and the cost of capital: a correction’’, American Economic Review, Vol. 53, pp.433-43.
[56] Modigliani, F. and Miller, M.H. (1958). ‘The cost of capital, corporation finance and the theory of investment’, American Economic Review, Vol. 48, pp. 261-97.
[57] Mouck, T. (1990). ‘Positive Accounting Theory as a Lakatosian Research Program’, Accounting and Business Research, Vol. 20, Issue 79, pp. 231-239.
[58] Myers, S. (2001). ‘Capital structure’, Journal of Economic Perspectives, Vol. 15, pp. 81 102.
[59] Nivorozhkin, E. (2004). ‘Financing choices of firms in EU accession countries’, BOFIT Discussion Papers, No. 6, p. 48.
[60] Nogler, G. E. (2008). ‘Going concern modifications, CPA firm size, and the Enron effect’, Managerial Auditing Journal, Vol. 23, Issue 1, pp. 51-67.
[61] Ntui, P., Waweru, N. and Mangena, M. (2011), "Determinants of different accounting methods choice in Tanzania: A positive accounting theory approach", Journal of accounting in emerging economies, Vol. 1, no 2, pp 144-159
[62] Pandey, I.M. (2007). Finance: A management guide for managing company funds and profits, Prentice –Hall of India, New Delhi.
[63] Pindado, J. and de la Torre, C. (2005). ‘A complementary approach to the financial and strategy views of capital structure: theory and evidence from the ownership structure’, Working Paper No. 666167, Social Science Research Network.
[64] Roden, D. and Lewellen, W. (1995). ‘Corporate capital structure decisions: evidence from leveraged buyouts’, Financial Management, Vol. 24, pp. 76-87.
[65] Sander, P. (2003). ‘Capital structure choice in Estonian companies: a survey’, Management of Organizations: Systematic Research, Vol. 27, pp. 122-35.
[66] Seppa, R. (2008). ‘Capital structure decisions: research in Estonian non-financial companies’, Baltic Journal of Management, Vol. 3, Issue 1, pp. 55-70.
[67] Sheedy-Gohil, K. (1996). ‘Putting the asset value of skills on the balance sheet’, Managerial Auditing Journal, Vol. 11, Issue 7, pp.16 – 20.
[68] Simerly, R. and Li, M. (2000). ‘Environmental dynamism, financial leverage and performance: a theoretical integration and an empirical test’, Strategic Management Journal, Vol. 21, pp. 31-49.
[69] Strathmore University. (2009). Financial accounting: CPA study text, Strathmore University, Nairobi-Kenya
[70] Tarek I. Eldomiaty and Mohamed H. Azim. (2008). ‘The dynamics of capital structure and heterogeneous systematic risk classes in Egypt’, International Journal of Emerging Markets, Vol. 3, Issue 1, pp. 7-37.
[71] Titman, S. and Wessels, R. (1988). ‘The determinants of capital structure choices’, Journal of Finance, Vol. 43, Issue 1, pp. 1-19.
[72] Tucker, J. and Stoja, E. (2004). Target gearing in UK, p. 40, available at: http://ssrn.com/ abstract ¼ 710325
[73] Watts, R. & Zimmerman, J. (1986). Positive Accounting Theory. Englewood Cliffs NJ: Prentice-Hall.
[74] Watts, R. L & Zimmerman, J.L. (1990). ‘Positive Accounting Theory: A Ten Year Perspective’, The Accounting Review, Vol. 65. Issue 1, pp. 131-156.
[75] Wen, Y., Rwegasira, K. and Bilderbeek, J. (2002). ‘Corporate governance and capital structure decisions of Chinese listed firms’, Corporate Governance: An International Review, Vol. 10, Issue. 2, pp. 75-83.
[76] World Bank and International Monetary Fund, (2005). Report on the Observance of Standards and Codes (ROSC) in Tanzania Accessed: 20th October, 2008, Available at: http://www.worldbank.org/ifa/rosc_aa_tza¬_0405.pdf
Cite This Article
  • APA Style

    NTUI Ponsian Prot. (2013). Evolution of Accounting Equation: Evidence of Companies Quoted on Dar es Salaam Stock Exchange-Tanzania. Journal of Finance and Accounting, 1(4), 55-63. https://doi.org/10.11648/j.jfa.20130104.11

    Copy | Download

    ACS Style

    NTUI Ponsian Prot. Evolution of Accounting Equation: Evidence of Companies Quoted on Dar es Salaam Stock Exchange-Tanzania. J. Finance Account. 2013, 1(4), 55-63. doi: 10.11648/j.jfa.20130104.11

    Copy | Download

    AMA Style

    NTUI Ponsian Prot. Evolution of Accounting Equation: Evidence of Companies Quoted on Dar es Salaam Stock Exchange-Tanzania. J Finance Account. 2013;1(4):55-63. doi: 10.11648/j.jfa.20130104.11

    Copy | Download

  • @article{10.11648/j.jfa.20130104.11,
      author = {NTUI Ponsian Prot},
      title = {Evolution of Accounting Equation: Evidence of Companies Quoted on Dar es Salaam Stock Exchange-Tanzania},
      journal = {Journal of Finance and Accounting},
      volume = {1},
      number = {4},
      pages = {55-63},
      doi = {10.11648/j.jfa.20130104.11},
      url = {https://doi.org/10.11648/j.jfa.20130104.11},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20130104.11},
      abstract = {This paper attempts to explain how an accounting equation evolves overtime. The paper looks at the accounting equation by using trade off theory and positive accounting theory lenses. The accounting equation is viewed as living or dynamic and changes according to human behavior or managers of company’s behavior. Regression model and descriptive statistics are used to show the relationship between total assets, liabilities and owners’ equity. The model is then used to show new form of accounting equation, rates of change of liabilities and owners’ equity. In this paper the writer finds new approaches or looks at accounting equation, the rates of change of liabilities and capital in relation to assets and shows the proportion of the two components of assets i.e. liability 64% and capital 36% to the asset. Finally the researcher explains the constant term which is not explained by authors of accounting field. This paper shows for the first time new form of accounting equation, different rates of change for the two components of assets and finally proportions of the owners’ equity/ capital and liabilities components on assets.},
     year = {2013}
    }
    

    Copy | Download

  • TY  - JOUR
    T1  - Evolution of Accounting Equation: Evidence of Companies Quoted on Dar es Salaam Stock Exchange-Tanzania
    AU  - NTUI Ponsian Prot
    Y1  - 2013/12/20
    PY  - 2013
    N1  - https://doi.org/10.11648/j.jfa.20130104.11
    DO  - 10.11648/j.jfa.20130104.11
    T2  - Journal of Finance and Accounting
    JF  - Journal of Finance and Accounting
    JO  - Journal of Finance and Accounting
    SP  - 55
    EP  - 63
    PB  - Science Publishing Group
    SN  - 2330-7323
    UR  - https://doi.org/10.11648/j.jfa.20130104.11
    AB  - This paper attempts to explain how an accounting equation evolves overtime. The paper looks at the accounting equation by using trade off theory and positive accounting theory lenses. The accounting equation is viewed as living or dynamic and changes according to human behavior or managers of company’s behavior. Regression model and descriptive statistics are used to show the relationship between total assets, liabilities and owners’ equity. The model is then used to show new form of accounting equation, rates of change of liabilities and owners’ equity. In this paper the writer finds new approaches or looks at accounting equation, the rates of change of liabilities and capital in relation to assets and shows the proportion of the two components of assets i.e. liability 64% and capital 36% to the asset. Finally the researcher explains the constant term which is not explained by authors of accounting field. This paper shows for the first time new form of accounting equation, different rates of change for the two components of assets and finally proportions of the owners’ equity/ capital and liabilities components on assets.
    VL  - 1
    IS  - 4
    ER  - 

    Copy | Download

Author Information
  • St. Augustine university of Tanzania, Mwanza, Tanzania

  • Sections