Rethinking Accounting for Value Creation: Evidence on the Misalignment between Financial Reporting and Economic Reality

Purpose: This study aims to rethink the role of financial accounting in representing economic value by examining the systematic misalignment between financial reporting and the processes through which firms create value. Rather than treating the divergence between accounting numbers and economic reality as a technical or disclosure-related issue, the paper investigates whether this misalignment reflects a deeper structural limitation inherent in the accounting model itself. Method / Design / Approach: The study adopts a conceptual and analytical research design supported by evidence-based illustrations. It integrates insights from accounting theory, capital market behavior, and institutional analysis, complemented by stylized empirical patterns such as persistent market-to-book disparities, investment–performance disconnects, and delayed recognition of value creation and erosion, with particular reference to emerging market contexts. Findings: The analysis demonstrates that financial statements systematically lag economic reality because they are designed to recognize realized outcomes rather than ongoing value creation processes. Core drivers of value—such as organizational capabilities, relational assets, strategic positioning, and institutional embeddedness—are conceptually excluded from financial reporting by design, not by measurement error. This structural misalignment explains persistent valuation gaps, weak contemporaneous links between accounting performance and investment behavior, and delayed signals of economic decline. Originality and Value: The study contributes by reframing the accounting–value gap as a structural misalignment rather than a remediable reporting deficiency. It shifts the debate from improving measurement and disclosure toward reassessing the conceptual boundaries of financial accounting. Theoretical, Practical, and Social Implications: Theoretically, the paper advances a process-based perspective on value creation. Practically, it cautions investors, managers, and policymakers against overreliance on financial statements as comprehensive representations of economic performance. Socially, it highlights how misinterpreted accounting signals can distort capital allocation and economic policy, particularly in emerging economies.