Institutional theory and accounting rule choice: an analysis of four US state governments' decisions to adopt generally accepted accounting principles

In this study, we use institutional theory to explore how institutional pre ssures exerted on four state governments (New York, Michigan, Ohio, Delawar e) influenced the decision of these governments to adopt or resist the use of generally accepted accounting principles (GAAP) for external financial r eporting. We identify resource dependence as a potent form of coercive inst itutional pressure that was associated with early GAAP adoption. We identif y three factors that may lead to initial resistance to institutional pressu res for change. First, if accounting bureaucrats are not active in professi onal associations that promote GAAP adoption, they may miss the educational process that we believe is important to early adoption of GAAP. Second, or ganizational printing may impede GAAP adoption. Third, powerful interests m ay impede GAAP if the proposed GAAP legislation is expected to alter the ex isting power relationships. We found that key accounting bureaucrats in New York and Michigan used "compromise" as an initial strategic response to in stitutional pressures to adopt GAAP, Ohio's key accounting bureaucrat adopt ed a "defy" strategy, although the political leadership endorsed an "acquie sce" strategy. While Delaware initially employed a "manipulate" strategy wi th some success. Delaware did not adopt GAAP for external reporting until a political entrepreneur for GAAP? emerged in the early 1990s. Our study sug gests that all strategic responses to resist institutional pressures for GA AP adoption will ultimately fail because of the potency of the institutiona l pressures that result from the well organized professional accounting and governmental institutional fields. (C) 2001 Elsevier Science Ltd. All righ ts reserved.