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Accounting choice: The role of monitoring costs
Author(s) -
Knoeber Charles R.,
McKee A. James
Publication year - 1991
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090120503
Subject(s) - depreciation (economics) , shareholder , sample (material) , accounting , business , accounting method , agency cost , agency (philosophy) , cost accounting , management accounting , test (biology) , economics , microeconomics , finance , corporate governance , profit (economics) , paleontology , philosophy , chemistry , chromatography , epistemology , financial capital , biology , capital formation
Focusing on monitoring costs, the agency framework is used to extend and test the positive theory of accounting choice. To reduce monitoring cost, a firm is predicted to adopt those accounting methods employed by other firms facing the most similar economic environment. This allows the firm's shareholders (typically acting through the Board of Directors) to use the performance of these other firms to better impute and reward its own manager's performance. This hypothesis is tested and supported by examining, for a sample of industrial firms, the choice of depreciation method.