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Accounting Theories (Positive theories (Agency Theory (Manager-Lender…

- - - - Monitoring - to monitor managerial behaviour
      - Bonding - managerial actions are constrained by the restrictions placed by shareholders to align the principal-agent relationship
      - Residual Loss - the reduction of wealth suffered by shareholders due to managerial behaviour that cannot be eliminated
    - - Horizon - shareholders interested in the long-term growth of the business VS managers interested in the short term profit
      - Risk Aversion - shareholder prefers risk VS manager prefers less risk
      - Dividend retention - shareholders prefers to receive dividends VS managers prefer to retain cash to expand the business
    - - Excessive dividend payments - managers distribute excessively VS lenders concerned with firms paying too much dividend
      - Underinvestment - managers have incentive not to invest in positive NPV projects that can increase funds available to lenders. As in the event of liquidation, lenders get the funds first
      - Asset substitution - managers choose riskers investments to maximise shareholder returns, and lenders bear the downside risk
      - Claim dilution - firms increase borrowing from higher priority debt which can reduce security to lenders
  - - - Considers how rules, norms and routines becomes established as authoritative guidelines, and considers how these elements are created, adopted and adapted over time. Comes from management literature
    - - Seeks to explain how stakeholders influence organisational actions. Argues that the extent to which an organisation will consider its stakeholder is related to the power or influence of those stakeholders
    - - Based on the idea of a social contract - related to the expectations society has about how the business should act