[ 1 ] Accounting Labor in the Virtuous Circle of Economic Development

(with Yi Chen, Kevin Lee, and Paul Madsen) [SSRN LINK]

R&R at the Journal of Accounting Research

Abstract

How and how much does accounting contribute to aggregate economic welfare? While these questions are clearly important, they have not been thoroughly addressed by archival studies because accounting is ubiquitous, making it difficult to identify research settings with informative comparisons, and because accounting institutions operate in conjunction with many other mutually complementary and coevolved economic institutions, making it difficult to causally attribute economic outcomes to any particular institution. In this study, we use the setting of the American industrial revolution from 1850 to 1930 to provide new empirical evidence on the welfare effects of accounting, specifically of specialist accounting labor. Our setting is attractive because it was a period when specialist accounting labor went from extremely scarce to common while, at the same time, the economy transformed from agrarian to a far more productive industrial economy. We find evidence of a virtuous circle at the county level in which specialist accounting labor was associated with economic development and economic development was associated with growth in the supply of specialist accountants. We do not argue that accounting labor is a mono-cause of economic growth. Rather, our evidence suggests it was part of a cluster of complementary growth-promoting institutions including large industrial firms, managerial hierarchies, education systems, and research investment. The local share of accounting labor is a strong predictor of economic development relative to other institutions. Our evidence suggests that specialist accountants, especially cost accountants working inside of industrial firms, were essential enablers of economic development.