By What Criteria Do We Evaluate Accounting?

Journal of Accounting Research

51 Pages Posted: 4 Oct 2022 Last revised: 27 Mar 2024

See all articles by Ray Ball

Ray Ball

University of Chicago - Booth School of Business

Date Written: September 19, 2023


The economic role of an accounting regime is to increase welfare through its effects – in conjunction with complementary institutions – on firm and household behavior. I review three major streams of the archival literature (real effects; price effects, including value relevance; and costly contracting), in terms of what they can and cannot reveal as proxies for welfare effects. One conclusion is that the partial correlations and average effects that predominate in this literature have provided valuable insights into the role of accounting in the economy, but provide limited and misleading proxies for welfare effects. A major concern is that teachers, students and researchers – indeed, regulators and standard setters – raised on this literature could lose sight of, and underestimate, the fundamental contribution of accounting to aggregate welfare.

Keywords: accounting information, aggregate welfare, costly contracting, real effects, value relevance

JEL Classification: A12, D60, D62, G28, M40, M41, M48

Suggested Citation

Ball, Ray, By What Criteria Do We Evaluate Accounting? (September 19, 2023). Journal of Accounting Research , Available at SSRN: or

Ray Ball (Contact Author)

University of Chicago - Booth School of Business ( email )

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