D86 - Economics of Contract: TheoryReturn

The series of corporate accounting scandals drew attention to the stewardship function of accounting. This exposition deals with the characteristics of accounting from perspective of institutional economic theory. I analyze relationship between owner and manager by the principal-agent model. This model helps us to reveal the causes which led to corporate scandals at the beginning of this millennium. As a reaction to these scandals, American Congress approved Sarbanes-Oxley Act. This act should help to protect investors by improving the accuracy and reliability of corporate disclosures.