Glasgow Theses Service http://theses.gla.ac.uk/ theses@gla.ac.uk Feng, Ying (Olivia) (2014) The development of an instrument to measure individual dispositions towards rules and principles; with implications for financial regulation. PhD thesis. http://theses.gla.ac.uk/5300/ Copyright and moral rights for this thesis are retained by the author A copy can be downloaded for personal non-commercial research or study, without prior permission or charge This thesis cannot be reproduced or quoted extensively from without first obtaining permission in writing from the Author The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the Author When referring to this work, full bibliographic details including the author, title, awarding institution and date of the thesis must be given. 1 1 The development of an instrument to measure individual dispositions towards rules and principles; with implications for financial regulation Ying (Olivia) Feng BAL, MRes, Enterprise Fellow of the Royal Society of Edinburgh Thesis Submitted in Fulfilment of the Requirements for the Degree of Doctor of Philosophy (PhD) Adam Smith Business School College of Social Sciences University of Glasgow September 2013 2 2 Acknowledgements I would like to first of all express my deep gratitude towards my loving parents, Mrs Ding De Zhen and Mr Feng Shu Lin who supported me through what has undoubtedly been the most challenging task I have undertaken in my life so far. I know I always have my parents to count on when times are tough. I would also like to thank my friends in Glasgow for being understanding and offering help whenever I needed it in all sorts of forms. In particular, I would like to thank my dear friends Alvise Favotto and Stan Kerr (who has sadly passed away in September 2013 unexpectedly) for supporting me academically and emotionally throughout my research journey, showing patience to my sometimes unreasonable demands. I would like to thank Eirini Bazaki for being a wonderful friend and flatmate. I also wish to thank Alan. S. Johnston for proofreading my thesis. I would like to thank my two supervisors, Professor John Francis McKernan and Professor Patrick J. O’Donnell for their continuous support. I feel eternally grateful to you both. Without your encouragement and guidance; the completion of this PhD would not have been possible. I would like to thank all the people who have participated in my research. I would like to express my gratitude to Glasgow University, Accounting and Finance department, for funding my PhD. I also would like to express my gratitude to the Institute of Chartered Accountants of Scotland for providing support in the form of Seed-corn funding for some of the data collection involved in this PhD. Finally, I would like to thank myself and God, for believing in myself and being persistent in the face of many obstacles and challenges. The PhD journey has taught me much more than just academic research, it has made me a better human being. 3 3 Abstract The main focus of this PhD project is the development and validation of a psychometric instrument for the measurement of individual dispositions towards rules and principles. Literature review and focus groups were used to generate insights into the reasons why individuals prefer rules and principles. On the basis of that review, an initial item pool was created covering the conceptual space of dispositions towards rules and principles. The final instrument consists of 10 items, 5 items each for the rules and principles subscales. The psychometric analysis suggested that it is valid and reliable. The instrument has sound predictive power and was able to significantly predict individuals’ behavioral intentions in relation to rules and principles across contexts. I found there were gender and ethnic differences in the relationship between dispositions towards rules and principles scores and behavioural intentions. This PhD is relevant to an emerging literature in behavioural accounting research that examines how practitioners’ personal characteristics and styles affect financial reporting practice. 4 4 Table of Contents Acknowledgements 2 Abstract 3 Table of Contents 4 List of Tables 14 List of Figures 18 Author’s Declaration 20 Abbreviations 21 Chapter 1: Introduction to the PhD 22 1.1 Introduction 22 1.1.1 The objective of the present PhD 22 1.1.1.1 My prior research journey 22 1.2 The organisation of the chapter 23 1.3 Rules vs. principles after the Global Financial Crisis 24 1.3.1 Research Background 25 1.3.2 Research Gap 26 1.4 Research Motivation 28 1.5 Research Questions 30 1.6 Research design and methods 36 1.7 Definitions of rules and principles as based on legal regulatory discussions 37 1.8 Chronology of the thesis 38 1.9 The intended contributions of this research 41 1.10 Conclusion 43 Chapter 2: Methodology and Methods 45 2.1 Objective for chapter and overview of content 45 2.2 Overall steps taken in this project 45 5 5 2.2.1 Conducting literature review for the generation of initial item pool 47 2.2.2 Steps adopted in this project 47 2.3 Basic methodological assumptions underlying the research 49 2.4 Methodology: Mixed method 51 2.5 Main research method: survey 51 2.5.1 Demonstrating the validity and reliability of the instrument 52 2.5.2 The main research method: Survey 54 2.5.2.1 The strengths of survey 54 2.5.2.2 The weakness of survey and potential remedies 54 2.6 Conclusion 55 Chapter 3: Rules vs. Principles in Accounting 56 3.1 Introduction 56 3.1.1 The organisation of the chapter 57 3.2 Trust and the debate 57 3.3 Definitions of rules- and principles-based regulation 58 3.3.1 The characteristics of a rules-based and a principles-based standard 60 3.3.1.1 Principles increase judgment and accountability 60 3.3.2 Institutional and political contexts of the rules vs. principles debate 61 3.4 Overview of the dimensions 62 3.4.1 Need for security 62 3.4.2 Need to ensure uniformity vs. flexibility 64 3.4.3 Need for predictability and certainty 65 3.4.4 Need for innovation 66 3.4.5 Concern for complexity 67 3.4.6 Concern for manipulation 69 3.4.7 Legitimacy issue 71 3.4.8 Concern for Ethics 71 3.4.9 Effectiveness 72 3.4.10 Efficiency 73 3.4.11 Need to reach closure 74 6 6 3.4.12 Abstractness vs. concreteness 74 3.4.13 Need for procedural fairness 75 3.5 Conclusion 75 Chapter 4: Rules and Principles in Law 77 4.1 Introduction 77 4.1.1 Overview of the chapter 78 4.2 Formalism vs. Anti-Formalism 78 4.2.1 The problems with the formalism 80 4.2.2 Anti-Formalism 81 4.3 Justification of choosing Dworkin’s positions 81 4.3.1 Dworkin: A Philosophical Basis 82 4.3.2 Legal Positivism on rules 83 4.3.3 Dworkin’s attacks on Positivism 84 4.4 Dworkin’s position on rules and principles 85 4.4.1 Two distinctions between a rule and a principle 86 4.4.1.1 Recognition conditions: validity 86 4.4.1.2 Application Conditions: relevance 88 4.4.2 Rules and Principles interplay 89 4.5 Criticisms of Dworkin’s rules vs. principles 90 4.6 Distinguishing principles and rules from other concepts 91 4.6.1 Analogies vs. rules and principles 91 4.6.2 Heuristics vs. rules 93 4.6.3 Rights, policies vs. rules and principles 93 4.7 Conclusion 94 Chapter 5: Psychological roots of rules and principles 96 5.1 Introduction 96 5.1.1 Organisation of the chapter 97 5.2 The nature of dispositions 98 5.3 Literature review on parenting style 99 7 7 5.4 Traits vs. Values vs. Cognitive styles 102 5.4.1Values and cultural difference - DRP 104 5.4.2 Legitimacy of rules and principles being studied in this project 105 5.5 Personality Factors 106 5.5.1 Conscientiousness 108 5.5.2 Extraversion 109 5.5.3 Openness to experience 109 5.6 Overview of constructs positively related to principles-orientation 110 5.6.1 Locus of control 110 5.6.2 Empowerment and self-efficacy 111 5.7 Overview of cognitive styles 112 5.7.1 Cognitive style - Need for Closure 112 5.7.2 Cognitive Thinking style 114 5.7.3 Higgins regulatory focus and the DRP 117 5.8 Conclusion 118 Chapter 6: Focus groups 120 6.1 Introduction 120 6.1.1 Overview 120 6.2 The focus groups 121 6.2.1 The nature and aims of focus groups 121 6.2.2 The abstract questions probing approach in focus groups 121 6.3 The practicalities of conducting focus groups 122 6.3.1 Recruiting participants and organising each focus group 122 6.3.2 Managing attendance 122 6.3.3 The size and number of the groups 123 6.3.4 Data privacy and anonymity 123 6.3.5 The role of Moderator and observer 123 6.4 The actual operationlisation of the focus groups 124 6.4.1The descriptive summary of the participants for 4 focus groups 124 6.4.2 The general questions which have been covered by the focus groups: 125 8 8 6.5 Transcribing Focus Group data 126 6.5.1 Data Analysis 126 6.6 Discussions: results of the preliminary study 127 6.6.1 Key words 134 6.6.2 Summary of the analysis of the focus groups 135 6.7 Conclusion 136 Chapter 7: Framework of the dimensions underpinning disposition towards rules and principles 137 7.1 Introduction 137 7.1.1 Overview 138 7.2 Overview of the 14 dimensions 138 7.2.1 The ethical dimension 138 7.2.2 The legitimacy dimension 140 7.2.3 Procedural Fairness 142 7.2.4 Concreteness vs. abstractness 143 7.2.5 Uniformity versus Flexibility 144 7.2.6 Need for certainty and predictability 145 7.2.7 Complexity 146 7.2.8 Need for security 147 7.2.9 Need for closure 149 7.2.10 Efficiency 150 7.2.11 Creativity 152 7.2.12 Empowerment 152 7.2.13 Effectiveness 154 7.2.14 Manipulation 154 7.3 The possible inter-relationships 156 7.4 Conclusion 159 Chapter 8: Initial item pool testing and reduction 160 8.1 Introduction 160 8.1.1 Overview 160 9 9 8.2 Preliminary item pool 160 8.2.1 Generating a pool of preliminary items 161 8.2.2 The scaling method: Likert scale 161 8.2.3 Self checking criteria for item Generation 161 8.2.4 Rationale for the multiple-items approach 162 8.3 Piloting stage one: 163 8.3.1 Qualitative piloting: Peer review panels 163 8.3.1.1 Ethical approval 163 8.3.1.2 Participants for the peer review sessions 164 8.3.1.3 The descriptive data of the sample 164 8.3.1.4 Analysing the feedback 165 8.3.2 Qualitative piloting: the subject matter experts 166 8.3.2.1 Problems identified by the experts and subsequent steps taken 167 8.3.3. The outcome after qualitative review stage of piloting 168 8.4 Online survey 169 8.4.1 Ethical Approval and Privacy Note 169 8.4.2 Sample recruitment for the online survey 170 8.4.3 Demographic data analysis of the preliminary item pool 170 8.4.4 Limitations of online survey and our remedy 171 8.4.5 Testing people’s ability in distinguishing between rules and principles 171 8.5 Piloting: quantitative analysis 174 8.5.1 Sample size 174 8.5.2 On using students as research subjects 175 8.5.3 Normality distribution 175 8.5.4 Missing data 176 8.5.5 Internal consistency reliability 176 8.5.5.1 Reversed items 178 8.5.5.2 Ways to improve the Cronbach’s alpha 178 8.5.6 Cronbach’s alpha analysis for 28 subscales 178 8.6 Exploratory Factor analysis (EFA) 181 8.6.1 Factor loading and factor scores 183 8.6.1.1 The choice of rotation 183 [...]... overview of issues 1.1.1 The objective of the present PhD The main focus of this PhD project is the development and validation of a psychometric instrument for the measurement of individual dispositions towards rules and principles The grounding of the instrument development is inter-disciplinary, and draws on debates concerning rules and principles in law, accounting and business, social-psychology, and. .. types of regulations, and in particular the balance of rules and principles, with which the individual is required to work The instrument I have 28 29 developed in this PhD project is designed, amongst other things, to help facilitate the creation of such fit The study of the measurement of the individual attitudes / dispositions towards rules and principles is supported by the increasing numbers of recent... interpreting and monitoring process necessary to the effective implementation of the PBR, and failed to sustain good ‘regulatory conversations’ with the regulated parties (Black, 2008) She notes that the financial markets are too fast moving and complex to be regulated in a ‘command -and control’ manner, and that we should not risk another Enron type of scandal associated with gaming rules (Ford, 2010) Moreover,... dispositions to rules and principles There are various research questions associated with this primary goal: 30 31 Underlying my efforts to develop an instrument to measure individuals’ dispositions towards rules and principles (DRP), and any value such an instrument might have, is the presumption that such dispositions exist (of necessity with some stability) Because dealing with rules and principles is an. .. carry the debt off balance-sheet With a principles-oriented auditor, the CFO's tendency to take the debt off balance-sheet is lower when GAAP is also principles-based rather than rulesbased With a rules- oriented auditor, the CFO's tendency to take the debt off balancesheet is lower when GAAP is rules- based rather than principles-based The empirical evidence from Jamal and Tan, 2008, and Herron and Gibertson,... a test of the instrument The main development of the use and application of the instrument I conceive as being reserved for work subsequent to this PhD project RQ4: Are dispositions towards rules and principles predictive of individual s actual behaviour in response to rules- or principles-based social cognitive tasks / situations? Individuals’ dispositions towards rules and principles (DRP) can come... China, and India are already in the process of transforming to the adoption of IFRS (data from IFRS website, 2012): Suffice to say, the rules and principles debate is still meaningful and relevant 1.3.1 Research Background The recent corporate scandals of Enron, World.com and Royal Ahold (Beest, 2009) prompted an effort to identify characteristics of accounting regulation that might have contributed to the. .. & Landsman, 2010) The state of regulation was certainly not solely responsible for the financial crisis, but it is commonly recognised as having been one of the factors that in combination with others made it possible, and the crisis has thus given rise to calls for significant reassessment of systems of financial regulation (Black, 2010, p 2) The recent shift to a more rules- based regulation can be... helps me to identify a number of important conceptual dimensions that affect individual attitudes to rules and principles His conceptions of rules and principles have deeply influenced my own view RQ2: Are individuals’ dispositions towards rules and principles independent and distinctive? In other words, does the relationship between individuals’ dispositions towards rules and principles tend to be orthogonal?... there may be “fit” and/ or “misfit” effects between types of standards and 3 Herron and Gilbertson (2004) found a match and mismatch effect between the judgment and the type of professional conduct code in application; rule or principles-based In particular, when there was a match between the form of the professional conduct code (rules- based or principles-based) and the moral development stage of the . including the author, title, awarding institution and date of the thesis must be given. 1 1 The development of an instrument to measure individual dispositions towards rules and principles;. participants and organising each focus group 122 6.3.2 Managing attendance 122 6.3.3 The size and number of the groups 123 6.3.4 Data privacy and anonymity 123 6.3.5 The role of Moderator and. validation of a psychometric instrument for the measurement of individual dispositions towards rules and principles. Literature review and focus groups were used to generate insights into the reasons