Experimental research in financial accounting

This paper uses recent experimental studies of financial accounting to illustrate the view of how such experiments can be conducted successfully. The focus is on how particular examples illustrate successful use of experiments to determine how, when and (ultimately) why important features of financial accounting settings influence behavior. The study describes how changes in views of market efficiency, reliance on the experimentalist's comparative advantage, new theories, and a focus on key institutional features have allowed researchers to overcome the criticisms of earlier financial accounting experiments. The study focuses particularly on: 1. how managers and auditors report information, 2. how users of financial information interpret those reports, 3. how individual decisions affect market behavior, and 4. how strategic interactions between information reporters and users can affect market outcomes. The examples include and integrate experiments that fall into both the "behavioral" and "experimental economics" literatures in accounting.