Dr. Anke Müßig, Professor of Accounting and Audit within the Department of Economics and Management at the Faculty of Law, Economics, and Finance (FDEF), and Dr. Lukas Löhlein, former PhD student at FDEF and now Assistant Professor at WHU Koblenz, have published an article in the journal Accounting, Organizations and Society. This leading journal is ranked 3rd on the Financial Times list of Journals used to compile the FT Research Rank
In the paper the authors describe research outcomes of a project funded by the University of Luxembourg’s internal research grant scheme. Titled “At the boundaries of institutional theorizing: Individual entrepreneurship in episodes of regulatory change”, the paper seeks to analyse how oversight of the German audit profession has evolved from 1997 to 2016.
In the aftermath of the corporate collapse of Enron and WorldCom in the early 2000s in the U.S., worldwide debate arose about the capacity of professional accounting bodies to self-regulate. In response, the Public Company Accounting Oversight Board (PCOAB) was established in the U.S. to regain the public’s confidence in financial auditing. High-quality financial audits are considered vital elements of efficient financial markets, so that investors can allocate their resources among the best investment alternatives, based on decision-relevant and reliable financial information.
The PCOAB has since served as a benchmark for the quasi-governmental regulation of the audit profession, which spread from the U.S. regulatory space into the global regulatory arena and back to the local (state) level. PCOAB-like public oversight bodies mushroomed around the world. Löhlein and Müßig investigate the transformation process from self-regulatory oversight arrangements to profession-independent audit oversight and its impact on the field of accounting in Germany.
Löhlein and Müßig analyse in detail the underlying mechanisms of gradual change in the institution of audit oversight. So-called ‘institutional entrepreneurs’ have been identified in previous studies as agents of change. Institutional entrepreneurs are those actors who are able to break with existing institutionalised rules, practices, or logics and mobilise action to establish alternatives. Despite these previous studies, empirical insights about why certain actors are able to surmount coercive, normative, and mimetic pressures, and to instigate change remain limited. Prior research focused mainly on collective actors, while analyses of individual entrepreneurs remained rare. Nevertheless, more recently, scholars have pointed to the individual as a promising research object in institutional theory.
Löhlein and Müßig seek to broaden the analytical understanding of how field-embedded individual actors develop into powerful change agents. Synthesizing prior research, Löhlein and Müßig develop a theoretical model that suggests agency as the outcome of an individual’s disposition to institutional ambiguities. They argue that it is the perception of institutional ambiguities that transforms an individual’s latent dispositions for activism into agentic action. In other words, the likelihood that an individual will engage to transform structures increases as perceived institutional ambiguities intensify and permeate the individual’s experiences.
Through their case study, Müßig and Löhlein show the distinctive way in which audit oversight developed in the field of German accounting. Whereas breakdown and replacement tend to be associated with the implementation of independent oversight systems, the field of German accounting changed more gradually over time. By revealing how institutional ambiguities were both the outcome of the accounting establishment’s efforts to maintain the logic of professional self-regulation, and the origins of severe intra-professional conflict, the paper offers three main contributions: firstly by developing a more nuanced view of agency in institutionalised fields through a model of “disposition to activism”, secondly by showing how a marginalised actor can transform an institutionalised field (namely through the harnessing of rhetorical devices), and finally by responding to calls for more studies on the translation of global regulations at the local level, supporting and complementing prior oversight research.