Still Searching for Excellence? International Accounting and the World's Most Outstanding Companies
| Author | Tony Steele,Mark Whittington |
| Published date | 01 September 1998 |
| Date | 01 September 1998 |
| DOI | http://doi.org/10.1111/1467-8551.00087 |
Introduction
This paper measures the effect of accounting
policy choices in the context of international
performance tables. Davis, Flanders and Star’s
(DFS) (1991) league table of the world’s most
outstanding companies is investigated. This is an
important league because it uses added value,
which Kay (1993) argues is the key measure of
corporate success. Added value is the difference
between a firm’s outputs and inputs comprehen-
sively accounted for. Kay’s contribution to busi-
ness strategy is to advocate this measure as the
key statistic for uncovering the foundations of
corporate success.
An incongruous finding from DFS (1991) is
how poorly Japanese, German and French com-
panies rank, on this measure, compared to US and
UK ones, which together occupy nine of the first
ten places. Added value is used in this paper to
demonstrate the importance of accounting-policy
choice. An important methodological problem
in accounting research is to ascertain whether
an effect is material. To determine materiality, a
decision context is needed. We argue that the
construction of league tables is a pervasive phe-
nomenon with manifestations not only in the ex-
cellence literature, but also in benchmarking and
fund management, for example. League tables are
a new context for the accounting researchers to
investigate whether differences are material.
We investigate the sensitivity of the rankings
to the three major conventions that are used in
calculating added value: depreciation policy, the
estimation of the cost of capital inputs and consist-
ency of international generally accepted account-
ing principles. Using rank correlation, we are able
to quantify the magnitude of the effects. The key
finding is that the degree of disruption caused by
international accounting differences is likely to be
the most material. It is equivalent, in this study, to
a 60% increase in the cost of capital or an 80%
change in the depreciation lives of fixed assets.
After adjusting towards consistent international
British Journal of Management, Vol. 9, 233–247 (1998)
Still Searching for Excellence?
International Accounting and the
World’s Most Outstanding Companies
Mark Whittington and Tony Steele
University of Warwick, Coventry CV4 7AL, UK
This paper measures the effect of accounting policy choices in the context of Davis,
Flanders and Star’s (DFS) (1991) league table of the world’s most outstanding
companies. Our study is an investigation of the robustness of the research underlying
Kay (1993). The sensitivity of the rankings to the three major conventions that are used
in calculating added value are examined: depreciation policy, the estimation of the cost
of capital inputs and consistency of international generally accepted accounting prin-
ciples. The key finding is that the degree of disruption caused by international account-
ing differences is likely to be the most material. It is equivalent, in this study, to a 60%
increase in the cost of capital or an 80% change in the depreciation lives of fixed assets.
After adjusting towards consistent international accounting, we now find that four
Japanese companies appear in the top ten. Before adjustment there were none.
© 1998 British Academy of Management
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