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Yuchuan Zhou

First Name: Yuchuan
Surname: Zhou
Department Dept of Marketing and Management
Supervisor(s): Prof Philomena Leung , Prof James Guthrie

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Paper Title

The controversial role of corporate accounting in controlling the management - A critique of agency theory in corporate governance

Purpose

This paper is intended to evaluate agency theory as a guiding framework for improving the information role of corporate accounting in corporate governance, in terms its effects on making informed decisions in disciplining the management to fulfill its responsibilities owed to the stakeholders.

Originality

Scholars in the extant governance literature criticise the theory for its over-simplistic assumption of the causality of the managementís opportunistic behaviour that compromise the managementís fulfilment of the duties owed to the stakeholders. They argue that by embracing such an assumption, the theory indicates misleading propositions on the development of the companyís governance system to improve the managementís accountability to the stakeholders. The current paper puts forward this literature by arguing the nature of the managementís behaviour as socially Ďconstructedí, in terms that the composition of the managementís behaviour is underpinned by the conditions in the social context in which the management is situated. It argues that it is the theoryís exclusion of the implications of these conditions in the theorisation leads to its narrow conception of the managementís behaviour as fundamentally driven by self-interest. It further points out the implications of these conditions on the development of the information role of corporate accounting in corporate governance as part of the development of the companyís governance system to improve the managementís accountability to the stakeholders.

Key literature/theoretical perspective

Social constructionism

Design/methodology/approach

A critical, reflective and discursive analysis

Findings

Agency theory indicates a highly mechanistic perspective on the managementís behaviour issues with which the company governance is concerned. By embracing this perspective, the theory considers the managementís behaviour as self-existing and reaches the conclusion that its opportunistic behaviour is inevitable given the existence of conflicts of interests it has with the stakeholders and the absence of intervention in its behaviour. This is opposed to the reality that the conditions of the social context have significant implications in the composition of the managementís opportunistic behaviour. The exclusion of these implications in the theorisation leads the theory to over-concentrate on improving the information generated by corporate accounting to the information input for the intervention in the managementís behaviour without acknowledging that the effects of this improvement on this intervention is indeed moderated by the social context.

Research limitations/implications

To improve the managementís accountability to the stakeholders is not merely an issue of constraining the freedom of the management to undertake opportunistic behaviour as claimed by agency theory. This improvement requires one to understand in-depth the social construction of the managementís opportunistic behaviour.

Keywords

Governance, Accountability, Corporate Accounting