Accounting Theory and Practice Individual Assignment

THEORIES

Select one of the following theories/hypotheses. Please do not combine theories.

Theories of regulation

The main thing with theories of regulation are that first, you’ve got to have a regulator. If the chosen article doesn’t have a regulator making regulation you can’t use a theory of regulation. All theories of regulation generally start out with the motivation of the regulator and then they move on to reasons why regulation fail or does not fail.

· Public interest theory

This theory starts out with a regulator who is benevolent and wants to help the public that they are supposed to be helping. They have the right intention when they pass regulation. If that regulation subsequently fails to be effective, the reason is usually incompetence or lack or resources. Nonetheless, the regulator is the good guy.

· Capture theory

In this theory, the regulator is viewed as being benevolent to start with and then they get “captured” by the stakeholder group of most power; the most influential groups of the public.

· Private interest theory (economic theory)

In this theory, the regulator is always a utility (wealth) maximiser. A regulator concerned with their own private interests.

Good author for theory of regulation: Pelzman.

Political economy or systems based theories

· Legitimacy theory

This theory talks about society at large and the “social contract”. It talks about how the social contract changes and companies that lose legitimacy seek to re-legitimise themselves and undertake legitimating activities (things that look good in the eye of the public after suffering a major social loss)

Good author for legitimacy theory: Suchman

· Stakeholder theory (select one branch)

This theory is concerned with an identifiable stakeholder rather than society at large.

Good author for stakeholder theory: Freeman.

· Ethical (moral) branch

This branch says that companies “should” do the right thing because it’s the right thing to do

· Managerial branch

This branch says that companies will do the right thing if a powerful stakeholder has the ability to punish them if they don’t do it

· Institutional theory

Good author for institutional theory: DiMaggio & Powell.

Economics or market based theories

These theories are too hard, ignore them

· Efficient market hypothesis

Focusses on Capital Markets Research.

· Agency theory

Good author for agency theory: Jensen and Meckling.

· Positive accounting theory (plus select one hypothesis)

Good author for PAT: Watts & Zimmerman.

· Political cost hypothesis

· Bonus hypothesis

· Debt hypothesis