Accounting methods and managers' decisions in the oil and gas industry

This study examines how accounting influences firm decisions, thereby providing insights into the economic consequences of accounting standards. I empirically model how certain factors affect managers' decisions about exploration outlays and reserve estimate revisions in the oil and gas industry, while varying accounting method across firms. Contemporaneous factors thought by prior research to influence firms' choices of accounting method are controlled for. Results show that firms that use different accounting methods make different decisions about exploration outlays and reserve estimates. These results are most robust among firms offering earnings-based bonuses.