AN EMPIRICAL-ANALYSIS ON BUILT-IN BIAS FACTORS OF FINANCIAL ACCOUNTING SYSTEM

Existing system that measures corporate performance is in actual the financial accounting system. However, it is not so designed as to measure an objective corporate performance since it involves some allocation procedures which cannot be limited to only one. By allowing the management to select an accounting policy or method from a set of options, financal accounting system resultantly allows to select an amount of profit from a range of profit amounts which could be computed. These facts introduce some biases into corporate performance measured by the financial accounting system compared with objective corporate performance. The study aims to investigate the actual effects of bias factors built in the financial accounting system empirically using 1,014 Japanese firms' financial data. Through sequential improvements using a heuristic approach a useful method of empirical analysis was found. Results of analysis indicates that nine bias factors out of eleven are actually effective with statistical significance. They are recommended to be categorized into two groups.