Theory 1.3 Evidence on the Theory
I. Evolution and State of Positive Accounting Theory
1.1 Evolution Modern positive accounting research began flourishing in the 1960s when Ball and Brown (1968), Beaver (1968). and others introduced empirical finance methods to financial accounting. The subsequent literature adopted the assumption that accounting numbers supply information for security market investment decisions and used this "information perspective" to investigate the relation between accounting numbers and stock prices. The "information perspective" has not provided hypotheses to explain why entire industries switch from accelerated to straight-line depreciation without changing their tax depreciation methods.
To predict and explain accounting choice accounting researchers had to introduce information and/or transactions costs.
I. Evolution and State of Positive Accounting Theory
1.1 Evolution
An important reason that the information perspective failed to generate hypotheses explaining and predicting accounting choice is that in the finance theory underlying the empirical studies, accounting choice per se could not affect firm value.
The 1978 paper helped generate the positive accounting literature which offers an explanation of accounting practice, suggests the importance of contracting costs, and has led to the discovery of some previously unknown empirical regularities.
Positive Accounting Theory: A Ten Year Perspective
Ross L. Watts and Jerold L. Zimmerman
THE ACCOUNTING REVIEW
2020/8/4
1
ABSTRACT
This paper reviews and critiques the positive accounting literature following publication of Watts and Zimmerman (1978, 1979).
A third improvement is reduction in measurement errors in both the dependent and independent variables in the regressions.

Structure
I. Evolution and State of Positive Accounting Theory
II. Criticisms of Positive Accounting Research
III. Summary and Conclusions
I. Evolution and State of Positive Accounting Theory
1.1 Evolution 1.2 Contemporaneous Positive Accounting
The most important of these improvements is tighter links between the theory and the empirical tests.
A second suggested improvement is the development of models that recognize the endogeneity among the variables in the regressions.
The 1979 paper produced a methodological debate that has not been very productive.
ABSTRACT
This paper attempts to remove some common misconceptions about methodology that surfaced in the debate. It also suggests ways to improve positive research in accounting choice.