Accounting Information And Corporate Governance

This article makes a detailed analysis of the relationship between accounting information and corporate governance by taking into consideration the agency issues arising from the separation of the managers from the owners under the modern corporate environments, and focusing on the managerial incentive contract-the most important and direct means for solving the agency conflict and realizing benefit coupling. This article does not only discuss from the common sense the roles of accounting information in both internal and external corporate governance mechanisms under the two different types of roles and goals that rely heavily on the decision usefulness (the valuation role) and the accountability approach (the contracting role), but also, in light of the principles of information economics, explores the micro application mechanism of accounting information .combining with stock price, during the course of establishing an incentive contract under the capital market environments . On the basis of the above-mentioned theoretical discussion, this articles dwells on the issue of incentives for managers-an important aspect in the reform and perfection of corporate governance in China now. This article is arranged as the follows:Chapter I Accounting Information and Corporate Governance This chapter tries to set up a theoretical framework for the analysis in this article. First of all, by reviewing the evolution of accounting objectives, this chapter reveals a fact that in the modern joint-stock company environment, and parallel to the "decision usefulness" goals with security pricing and investment decision serving the capital market as orientation, the extended contracting role of the accounting information rooted in the traditional accountability accounting has become more and more dominant in establishment, execution, supervision and assessment of contracts covering agency relationship between stockholders and managers. Then, taking into consideration such environmental features of asymmetric information, thischapter goes on to analyze two different orientations in application of accounting information -the emphasis on the decision usefulness of accounting information by controlling adverse selection (e.g. correlativity with equity valuation), and the emphasis on reliability and rigidity of accounting information in accountability assessment with a view to solve moral hazard (i.e. measurement of efforts by managers). Then it points out that they both are uniform to a certain extent: the selection of accountability assessment measures is also required to be in consistence with the goals of stockholders, i.e. the correlativity of the equity value should not be neglected in the selection of contracting measures. Upon this basis, this chapter discusses the inter-dynamics between accounting information and share prices under the capital market environment, thus laying a foundation for the analysis of their joint values in making a contract. The purpose of the above preliminary discussion concerning the goals and roles of accounting information is to provide a theoretical basis for the later dwelling on the proposition of Information and Corporate Governance. Then this chapter continues to expound the issue of corporate governance. According to the definition of business goal, logic of governance and other basic premises in the preface, the corporate governance is defined as aiming at solving the issue of moral hazards that the managers have brought to the stockholders due to the separation of each other. The governance structural arrangement includes the internal incentive and restrictive arrangements such as separation of decision powers, supervision by directors, and management inspiration, as well as external governance measures such as the competitive mechanism of the market. As the managerial incentive contract is a direct important means to solve the agency issues and is naturally associated with accounting information (such information is an important measure for making a contract), this article extends i...