Agency theory and accounting research: emergent conceptual and empirical issues

The objectives of this chapter are four-fold: (1) to provide an introduction to the fundamental concepts of AT including the basic (or standard) agency model, its underlying assumptions, and the types of agency problems faced in two common organisational relationship sets, namely: the shareholder-manager and the debtholder-shareholder relationships; (2) to delineate two common strategies available to reduce opportunistic behaviour by agents i.e. monitoring activities and incentive schemes; (3)to provide a critical evaluation of the use of AT in accounting research. In particular, a comparison of the inherent advantages and disadvantages of the three main research approaches adopted by accounting researchers, i.e. the Principal-Agent, the Transaction Cost Economics and the Positivist is provided with insights from Baiman's (1982, 1990) critique of AT. This is followed by a review of several empirical studies in accounting focusing on the design of managerial employment contracts, andto provide several suggestions for future AT research within the context of rapidly evolving organisational and socio-economic settings. Possibilities for future research include assessing the impacts of newer forms of organisational structures and forms on agency relationships, a wider set of theoretical perspectives that may complement or challenge the assumptions of AT, individual managerial personality, cognitive and other idiosyncracies which may affect their motivation to work despite their incentive structure; as well as, the issue of factors such as trust and organisational culture that may influence managerial behaviour and their attitudes towards value creation.