Research On Allocation Of Residual Control Rights Of Accounting Standards Based On Incomplete Contract Theory

Accounting standards are the basis of accounting recognition, measurement and reporting. From the perspective of contract, accounting standards have the character of incomplete contract, providing a flexible space of choice range and self-judgment in some aspects, such as accounting principles, measurement methods, value estimate and so on. Accounting standards don't determine precisely who have the residual control rights of the accounting standards in companies. Having the residual control rights, different subjects will use different kinds of ways and lead to different accounting results, which will affect the interests of all stakeholders further. Therefore, the fundamental divergence among every subject in incomplete contract is who should have the residual control rights of accounting standards and how to distribute the value. The misallocation of residual control rights will weaken the effect of accounting standards and lead to managers'opportunistic behavior and distorted accounting information. It has important practical significance to research allocation of residual control rights of accounting standards based on incomplete contract theory. This research can perfect the development process of accounting standards, improve the decision usefulness of accounting information, coordinate the benefits among various subjects of contract and promote optimal allocation of resources. This research also can make great contribution to constructing the theoretical framework of incomplete contract of accounting standards and extending the application fields of residual control rights, where the economics idea in incomplete contract theory provides the full theoretical support to study on earnings manipulation.First of all, this paper established the theoretical foundation of the research on allocation of residual control rights of accounting standards. In accordance with incomplete contract theory, this paper defined the assumptions of the research on the allocation of residual control rights of accounting standards, analyzed the contracting process and economic consequences in theory, further analyzed the impact mechanism of incomplete contract on the business activities, and defined the related concepts of residual control rights of accounting standards.Secondly, this paper examined the economic consequences of the flexible space of accounting standards. This paper tested the influence of the application of the residual control rights of accounting standards on enterprises'market value, verified whether the application effect could be a way of earning manipulation for enterprises, and examined the application effect of its rights and the characteristics of earning manipulation of an enterprise when different subjects had residual control rights of accounting standards. This paper studied the economic consequences of the use of residual control rights from two aspects: the impact on the market by using residual control rights of accounting standards and the distinctions among different subjects taking up the residual control rights. All the studies were used to verify the necessity of the study on allocation of residual control rights of accounting standards.Thirdly, this paper studied the factors influencing the allocation of residual control rights of accounting standards from the perspective of endogenous contracts. Capital structure has a decisive effect on managerial decision and corporate governance efficiency, and it also has impact on the application of the residual control rights of accounting standards. To find out the influence of residual control rights distribution of the company on the allocation of residual control rights of accounting standards, this paper studied from three views: equity contracts, debt contracts and compensation contracts. In the case of the ownership concentration and dispersion, this paper, by means of three general equilibrium models, analyzed whether the owners'allocation degree of residual control rights can influence the overall effect of the use of the residual control rights of accounting standards. The paper also analyzed how to reduce the agency costs of residual control rights of accounting standards with the constraint of equity contracts. The paper also verified the effect of debt contracts and compensation contracts on the use of residual control rights of accounting standards through a theoretical model, and empirically tested whether the debt contract and compensation contracts play supervisory and motivation roles effectively. According to the correlation study of equity contract, debt contract or compensation contracts and allocation of residual control rights of accounting standards, this paper provided a basis for the allocation of residual control rights of accounting standards and the reduction of transaction cost and agency cost on different contract conditions.Finally, the paper analyzed the conflict of interest and equilibrium outcome by evolutionary game model when multiple parties participate in the allocation of residual control rights of accounting standards. Incomplete contracts will make property rights unclear and the problem of allocation of control right. Because different contracting parties in the enterprise have different objective function, and all of them wish to influence the allocation of residual control rights of accounting standards as much as possible in order to maximize their contract goal. Therefore, the paper must give full consideration to the parties'learning and adjustment capacity when it analyzed the strength and power among the contracting parties and stakeholders. The paper also used evolutionary game theory to analyze the process of contract parties participating in the allocation of residual control rights of accounting standards by multi-staged dynamic. The analysis combined corporate governance and vertical integration, which were two methods to solve incomplete contract, to find the optimal configuration results of residual control rights of accounting standards.The results showed that the flexible space of accounting standards had economic consequences. In the enterprises with ownership concentration, there was a significant negative correlation between the proportion of large shareholders'shareholding and earnings management. It was helpful to reduce earning management for controlling shareholder to have residual rights of control. The enterprise with more debt contracts, especially more long-term debt, will reduce more earning management. Long-term debt contracts played a stronger supervisory role for the use of residual control rights of accounting standards than short-term debt contracts. Managers with more shareholding ratio had more possibility to conduct earning management. And the evolutionary game result showed that the participation and supervision with various parties could make the distribution of benefits reach equilibrium state, which was useful to maximize the overall value rather than only one party's value.The research method of this paper made a breakthrough by combing the idea of incomplete contract and micro-accounting policy choice, which not only analyzed the limitations of the contract nature of accounting standards, but created a research framework of the allocation of residual control rights of accounting standards. The paper made incomplete contract theory as a common research foundation to study accounting standards and micro-enterprises'inner features, establishing a model of the relations between contract factors and the residual control rights allocation of accounting standards. And then it made an empirical test, which broke the previous research making different contracts separate. In this paper, it was also innovation of incomplete contract method to research the process of multi-party participating the allocation of residual control rights of accounting standards by evolutionary game theory.