Agency Theory and Accounting Choice
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
This study analyses the effect of the agency theory and accounting choice usually been made by managers of Nigeria listed companies. It (agency theory and accounting choice) can be demonstrated in the modern day companies where management is usually separated from the ownership of business. The professional managers are supposed to make decisions and take actions that are consistent with the objective of maximising shareholders wealth. But this may not be happen in practice because the managers may have goals that are inconsistent with those of the shareholders (Isenmila, Erabhe, & Ogiedu (2010). Prior researchers like Hagerman & Zmijewski (1979) and Zmijewski & Hagerman (1981) have attempted to model what motivates managers in choosing accounting methods, This study extends their scope of work by examining the depreciation method choices relationship with agency theory for a set of listed firms in Nigeria.
There are several theories that help us to develop hypotheses on the effect of Agency theory and accounting choice as noted by Gopalakrishnan (1994): the positive accounting theory (Leftwich, Watts and Zimmerman (1981) and Watts and Zimmerman (1978)), the signalling theory (Ross (1977)), and legitimacy and institutional theory. These theories are the background of several accounting studies on determinants of and effect of agency theory and accounting choice.
Therefore, this study is aimed at exploring the relevant literatures on the effect of agency theory and accounting choices made by managers not only when they are in conflict with each other but also to highlight their consequences on the outcome of an entity’s accounting system and how this affects the shareholders.
1.2 STATEMENT OF THE RESEARCH PROMLEM
Researchers like Malik & Nabil (1999) and Gopalakrishnan (1994) had carried out researches in the areas of accounting policy choice in an interest-free environment and accounting
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
This study analyses the effect of the agency theory and accounting choice usually been made by managers of Nigeria listed companies. It (agency theory and accounting choice) can be demonstrated in the modern day companies where management is usually separated from the ownership of business. The professional managers are supposed to make decisions and take actions that are consistent with the objective of maximising shareholders wealth. But this may not be happen in practice because the managers may have goals that are inconsistent with those of the shareholders (Isenmila, Erabhe, & Ogiedu (2010). Prior researchers like Hagerman & Zmijewski (1979) and Zmijewski & Hagerman (1981) have attempted to model what motivates managers in choosing accounting methods, This study extends their scope of work by examining the depreciation method choices relationship with agency theory for a set of listed firms in Nigeria.
There are several theories that help us to develop hypotheses on the effect of Agency theory and accounting choice as noted by Gopalakrishnan (1994): the positive accounting theory (Leftwich, Watts and Zimmerman (1981) and Watts and Zimmerman (1978)), the signalling theory (Ross (1977)), and legitimacy and institutional theory. These theories are the background of several accounting studies on determinants of and effect of agency theory and accounting choice.
Therefore, this study is aimed at exploring the relevant literatures on the effect of agency theory and accounting choices made by managers not only when they are in conflict with each other but also to highlight their consequences on the outcome of an entity’s accounting system and how this affects the shareholders.
1.2 STATEMENT OF THE RESEARCH PROMLEM
Researchers like Malik & Nabil (1999) and Gopalakrishnan (1994) had carried out researches in the areas of accounting policy choice in an interest-free environment and accounting