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Accounting Theories (Positive theories (Agency Theory (Manager-Lender…
Accounting Theories
Positive theories
Agency Theory
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Lead to Agency Costs
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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
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System-oriented theories
Institutional Theory
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
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Legitimacy Theory
Based on the idea of a social contract - related to the expectations society has about how the business should act
Contingency Theory
Argues that businesses need to adapt to external environment. There is no best way. Comes from management literature
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