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Does business model affect accounting choices? An empirical analysis of European listed companies

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Abstract

Financial accounting research increasingly includes business model (BM) constructs, but the ability of financial reporting to capture BM characteristics has not been verified. This study empirically explores the links between BMs and accounting choices by clustering a sample of 103 European listed companies according to an innovative, nonlinear algorithm (self-organizing map) that uses pertinent industrial, strategic, governance, and financial variables to uncover different dimensions of a BM. The authors investigate accounting choices (accounting measurement, accounting treatment, and disclosure level) by companies that belong to the different identified BMs. The analysis of the relations between different company BMs and their accounting choices indicates no significant connections, which offers empirical confirmation of the criticisms regarding the inability of financial reporting to represent (or even consider) a company’s BM. The results suggest further attempt to capture BM in financial reporting, which requires regulators to establish accounting standards that acknowledge the value creation processes of an entity and incentivize managers to represent those processes.

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Notes

  1. We excluded finance companies (e.g., banks and insurance firms), which use different accounting principles.

  2. In the accounting systems investigations among countries, Continental Europe has been contrasted with Anglo-Saxon countries to compare different accounting traditions (Mueller 1967; Frank 1979; Nair and Frank 1980; Doupnik and Salter 1993; Nobes 1983, 1998, 2003, 2004, 2011).

  3. The SOM algorithm is trained iteratively, and the variables are connected to adjacent ones by a neighborhood relation. At each training step, a sample vector is randomly chosen from the input data set. To select the best matching unit across different partitions, various validity indexes have been used (Bezdek and Pal 1998). This approach helps reduce noise in the data and thus limits outlier points (Silva and Marques 2010).

  4. We verified that the results remained the same when we checked for industries and for countries; that is, belonging to different industries or countries did not affect accounting choices.

  5. The average scores of each accounting choice are computed over the analyzed 3 years. We verified that the results remained the same when we checked for each year in the analyzed period.

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Acknowledgments

The authors are grateful to the anonymous reviewers and to the editor for their insightful comments. Furthermore, we acknowledge the attendees to the AIDEA Conference held in Lecce in September 2013 and to the Workshop “Business model and business sustainability” held in University of Kore (Enna) in June 2014. While the article is the result of a joint effort of the authors, the individual contributions are as follows: Ugo Lassini wrote “Background” and “Results and discussion”; Andrea Lionzo wrote “Introduction”, “Business model disclosure: Literature review and hypothesis formulation” and “Conclusions”; Francesca Rossignoli wrote “Research process”, “Sample selection”, “Variable selection for BM detection” and “Data collection and accounting choices analysis”.

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Authors and Affiliations

  1. Catholic University of Sacred Heart, Largo A. Gemelli, 1, 20123, Milan, Italy

    Ugo Lassini & Andrea Lionzo

  2. University of Verona, Via dell’Artigliere, 19, 37129, Verona, Italy

    Francesca Rossignoli

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  1. Ugo Lassini
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  2. Andrea Lionzo
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  3. Francesca Rossignoli
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Corresponding author

Correspondence to Francesca Rossignoli.

Appendix

Appendix

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Fig. 3
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U-matrix

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Lassini, U., Lionzo, A. & Rossignoli, F. Does business model affect accounting choices? An empirical analysis of European listed companies. J Manag Gov 20, 229–260 (2016). https://doi.org/10.1007/s10997-015-9321-5

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