Financial Acounting

Journal of Accounting and Economics 32 (2001) 237–333

Financial accounting information and corporate governance$
Robert M. Bushmana,*, Abbie J. Smithb a Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC 27599-3490, USA b Graduate School of Business, University of Chicago, USA
Received 4 October 1999; received in revised form 4 April 2001

Abstract
This paper reviews and proposes additional research concerning the role of publicly reported financial accounting information in the governance processes of corporations.
We first discuss research on the use of financial accounting in managerial incentive plans and explore future research directions. We then propose that governance research be extended to explore more comprehensively the use of financial accounting information in additional corporate control mechanisms, and suggest opportunities for expanding such research. We also propose cross-country research to investigate more directly the effects of financial accounting information on economic performance through its role in governance and more generally. r 2001 Elsevier Science B.V. All rights reserved.
JEL: D8; F3; G3; J3; M4
Keywords: Financial accounting; Corporate governance; Agency; Moral hazard; Compensation

$
We thank Thomas Dyckman, Thomas Hemmer, Edward Lazear, Thomas Lys (Editor), Joseph
McConnell, Raghuram Rajan, Richard Sloan (Discussant), Ross Watts, Jerry Zimmerman
(Editor), Luigi Zingales, and seminar participants at Carnegie Mellon University, Columbia
University, Cornell University, and the 2000 Journal of Accounting & Economics Conference for their helpful comments. We also would like to thank Xia Chen for her valuable research assistance.
Abbie Smith thanks the Institute of Professional Accounting of the Graduate School of Business,
University of Chicago, and Robert Bushman thanks The Pricewaterhouse Coopers Faculty
Fellowship Fund for financial support.

*Corresponding author. Tel.:

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