“Accounting Horizons” to Publish Research by W&L’s Megan Hess and Drew Hess The paper investigates the relation between accounting failure and innovation.

By Taylor Meeker
January 6, 2020

A paper written by Megan Hess ’97, Associate Professor of Accounting, and Drew Hess ’97, Associate Professor of Business Administration, has been selected for publication by the American Accounting Association (AAA) journal Accounting Horizons.

The paper, titled “The Consequences of Accounting Failure for Innovation: A Multi-Level Analysis,” investigates the relation between accounting failure and innovation. For this project, they develop and test a model for how top executives and functional managers change their risk preferences in response to public disclosures of financial misconduct.

They find that accounting failures reduce subsequent investments in research and development at the firm level, predicted by a threat rigidity (“play it safe”) psychological response among top executives. Accounting failures have the opposite effect at the project level, which results in an increase of exploratory projects, predicted by a failure trap (“swing for the fences”) psychological response among functional managers.

Professor Megan Hess started this research project as a doctoral student. Her years working in forensic accounting provided practical knowledge about financial fraud that she wished to explore further.

“My husband Drew, who is also an academic, suggested that perhaps fraud could affect the process of innovation,” said Hess. “Early on we developed the ‘playing it safe’ hypothesis which ended up being one of the two major findings of this research project. It was wonderful getting to work together on this idea and to combine our individual expertises in this way.”

The paper will be published in Accounting Horizons later this year. The journal, one of the AAA’s three association-wide journals, seeks to provide academic and professional articles focusing on the broad subject of accounting and the accounting profession.

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