In fact, positive research in accounting started coming to prominence around the mid-1960s and had been a vector of paradigm shift within the financial accounting research in the 1970s and 1980s.
The term “positive” refers to the theory that attempts to explain and make good predictions of particular phenomena.
The positive accounting theory (PAT) relied in great part on work undertaken in economics and was heavily reliant on the efficient market hypothesis, the capital assets pricing model, and agency theory.
PAT has led to a large amount of empirical studies.
The term “Positive Accounting Theory” has come to practise to refer to the accounting theory developed and named by Watts and Zimmerman.
The authors seek to appreciate and explain the concept of economic consequences of the interests of managers and financial accounting and reporting.
This chapter aims to put light on the PAT and related empirical studies and identify its broad contributions to the accounting research.
Our objective is to provide a review of extant literature in order to synthesize findings, identify areas of controversy in the literature, and evaluate critiques.
We conclude that this theory has generated several useful insights on managers' reporting decisions.
In this section, we examine the forces and the publications that had a major impact on the emergence of PAT.