ACC8000 Research in Accounting Practice
In a company, an agency theory is defined as the theory that explains a relationship between principals and agents. As per the agency theory, an agent is hired by the principal in respect to perform work according to the best interest of principal (Uwuigbe et al., 2016). In addition, the agency theory helps to address the issues that occur because of the differences between the targets and desires or between the principal and agent. In agency theory, there are several duties that are included for the agent so that he/she can perform accordingly within the company in order to achieve desired goals. These duties are as follows:
- Act on the basis of and be subject for controlling of the principal,
- Perform the tasks within the scope of authority provided by the principal,
- Complete the responsibilities with proper care and diligence,
- Avoid conflicts between personal interest and those of the principal
In this concern, it is also identified that within the agency theory, some incentive systems designs with effectiveness through considering what kind of interest motivates the agent to perform. The effective incentive is a way by which an agent can be motivated and behaved with respect to preparing accounts (Smith, 2017).
Nowadays, the agency theory is a most important theory that helps the company to maintain the relationship between shareholders or principal and managers or agent. In this manner, agency theory provides the way to develop the understanding regarding business challenges (Shogren et al., 2015). This agency theory mainly focuses on the interest of shareholders, customers, employees, the public and vendor or suppliers etc. In addition, there are many challenges that occur within the business due to various reasons such as miscommunication of information, incomplete information, and conflict that might be explained by using this agency theory. In a similar manner, agency theory also describes the issues as well as problems which take place while one party represents another within the business but at the same time keep different views on main business issues as well as different interest from the principal (Nevo et al., 2016). Within the company, the agent works on the behalf of another one that may not agree about the best actions and permits personal beliefs in order to influence the result associated with the transaction. At the same time, some time agent works as per its self-interest rather than the principal’s interests.
An agent acts not only in the area of accounting but also other areas where a principal needs to focus in order to achieve the organizational objectives. It includes different tasks such as management, organizes, planning, implementing, reviewing and controlling etc. These are the areas that are also managed by the agent within the organization (Bosse and Phillips, 2016). In this way, the principal provides some additional power to the manager or agent so that he/she can complete their tasks in a more effective manner.
In the way of alternative theories, there are several alternatives for the agency theory that challenge what motivates the agents. The shareholder’s theory is defined as the alternate of agency theory. In the concern of shareholders theory, it is examined that it is a normative theory related to business ethics as well as corporate social responsibilities (Dawson et al., 2016). This theory defines that how the corporate leader can deal within their business environment along with each of their different perspectives in which one leader is emphasizing to give priority on the interest of shareholders and at the same time, another leader is emphasizing to give priority on the bigger business interest of shareholders. In this way, this theory defines that how the executives and managers create the decisions within the business. On the other side, as per this theory, the company hold a responsibility for a wider group of stakeholder along with shareholders (Song et al., 2015). In a similar manner, it is also determined that shareholders theory does not focus on motivates the agents as the agency theory does. With the shareholder’s theory, shareholders get a long-term financial view on the basis of they can make strategic decisions.
The need for monitoring the employees has the principal in order to ensure that they are performing the tasks in the best interest of principals. In agency theory, there are some problems that are related to agent and principals. In this way, one problem is Principal-Agent Problem and this occurs when the agent is authorized to make decisions on the behalf of other person or principal (Boučková, 2015). In this manner, there are issues related to conflicts of interest and moral hazards. From the research, it is examined that the principals are unable to observe the actions of the agents that are monitored by the. In this way, the actions or affords of agents are unobservable For resolving this problem, the principal can start a system named as group incentive mechanism in which many agents are involved who monitor to each other. With this mechanism, the principal or shareholder is able to monitor the actions and affords of agents that they performed within the organization in order to make it profitable and well organized (Teece, 2014). By monitoring the agents within the organization, the principal can ensure that agents act as per the prescribed rule and they are not thinking about any kind of fraud against the company.
According to the agency theory, it is determined that it focuses on different interest as well as the goals of the stakeholders within the organization. The compensation of the executives is depended on the interest and goals of principals. In this way, it is determined that the stakeholders are removed away from the routine operations of the organizations. That is why the agency costs occur (Parker et al., 2018). Accordingly, managers give more emphasize on base salary and lesser on incentives as well as uncertain bonuses. The agency theory also gives its attention on non-manager’s compensation. In this situation, the deviation of interest might take place between the managers and its executives. As per the agency theory, the management should set up a contracting scheme which helps to line up the interest of management along with interest of executives. There are two contracts such as outcome-oriented contracts and behavior based contracts etc that can help the organization to reduce the agency costs (Kleven et al., 2016). In this way, some pay practices that are different from each other with the organizations as well as within the jobs. Different pay practices are a form of pay, level of benefits, pat structure, and administration etc. With these practices, an executive within the organization can be paid differently because the agency theory mentions that executives are paid as per their flat salary and related pay systems.
The long-term incentive plan is identified as the reward system which is designed in order to improve the performance of the employees by providing rewards within the organization. In this manner, these provided rewards to the employees are not associated with the share price of the company (Flammer and Bansal, 2017). Generally, a long-term incentive plan covers the employees from the executive level in which they have to fulfill various conditions as well as the requirements of the company. In these requirements, employees need to prove that they have contributed through performing effectively with respect to increase the shareholder’s value. This system is adopted by the companies because with the help of this plan, the company can pay that person who has contributed to creating the value for the company (DAILY et al., 2014).
As per the Pepper and Gore (2014), it is found that there is major variance in participant’s responses related to risk and incentives which was connected to the country where the participants resided (Eikeland and Skjærseth, 2016). Company’s incentive policies are depended on the country in which the company is working. These terms create the risk for the employees within the company in relation to their payment.
As per the Hofstede’s cultural dimensions theory, it is identified as the framework for cross-cultural communication. It defines the impacts of the culture of the society on the values of its employees and it also defines that how these company’s values connected to the behavior (Hur et al., 2015).
According to Creswell, there are six types of mixed methods that are used in the research study of Masoud. In this, it is found that the classification of the mixed methods presents the six methods of the research that is as sequential explanatory, sequential transformative; 4) concurrent triangulation, concurrent nested, sequential exploratory, and concurrent transformative.
By analyzing the research study of Weal and Saleh (2018), it can be summarised that Creswell has determined the 3 main types of mixed methods that are explained below:
1) Concurrent design (triangulation): This research study has developed effectively in the context of the concurrent design. In this research study, as concerning the concurrent design, the researcher has effectively collected the qualitative and quantitative data and compared the research result effectively.
2) Exploratory sequential design: In the research study of Weal and Saleh (2018), it is found that the research study was based on qualitative information more as compared to quantitative information. As concerning the exploratory sequential design, it is found that hypothesis is generated or tested to achieve the research aim and objectives. In the second phase of the exploratory, the quantitative component is deployment.
3) Confirmatory sequence design. Moreover, it is also analyzed by the study of Weal and Saleh (2018), Confirmatory sequence design allows the researcher to unfolds the quantitative research study. In confirmatory sequence design, qualitative data is focused to develop the better understanding on the research problem.
The main advantage of the application of this research study is that the presentation of the research outcomes is so simple that allows the readers to understand the research study findings. At the same time, this research study also discussed the views and opinion of the general population. At the same time, it is also found that this research method is also effective, accurate and reliable to show the research findings.
As concerning the disadvantage of the current research study, it is found that there are various limitations of this research study. In this, it is found that this research study is designed very complexly so that it is difficult for readers to understand the research findings. At the same time, it has also been seen that it was the time-consuming activity that it takes the more time to implement the research study and plan the resource of the data collection method. In additionally, it is also found that planning and implementing of another method is to be difficult.
The selecting of the participant in the research study is a kind of the sampling process. In the research methodology, it can be seen that sample can be seen with the two sampling technique such as probability sampling technique and non probability. In this, it is also found that probability sampling method allows the researchers to make the equal participants in the research study. Beside of this, it is also found that non probability does not provide the equal chance to the researcher participants to involve in the research study. In the context of this, research study, it is found that researcher has selected 20 Wintec accounting students and taken their interview. In this, it is found that the researcher has selected the participants randomly that is only possible in probability sampling method. Probability sampling method is effective to reduce the issue of the biasness in the research study.
In the research study, it is found that the research participants were interviews effectively in the research study. In this, it has been seen that the selection of the research participants from the Wintec that are studying for Bachelor of Applied Management degree. In this, it has been seen that the selected sample size is equal to 13% of the population that is enough to collect the view of the whole population. At the same time, it is also found that however the researcher can select the more persons for the interview but it will be time consuming for researcher.
In this research study, it can be seen that qualitative data is analysed in the form of the literature review form that is effective to develop the theoretical understanding of the research issue and problem in the effective manner. At the same time, it has also be seen that the researchers are used the various theories and model to support the analysis of the qualitative data in the research study that enhances the research quality. However, it is also find that there some limitation of the analysis of the qualitative data in the research study as the findings of the previous research studies are analasyed in the short. So that there is an opportunity to increases the discussion on the qualitative information that will be helpful to develop depth understanding on the theoretical aspect of the research study.
E. How do Masoud (2017) and Weal and Saleh (2018) go about analysing the data derived from the quantitative parts of their studies. Do you believe one study uses a more rigorous approach than the other? Explain why one study uses a superior approach.
In the research study of Weal and Saleh (2018), it is found that the data has and information has collected from concerning the mixed method of the design that it is helpful to develop the minimise the gap between the need of the qualitative information and quantitative information of the research study. In this, it is also found that the quantitative information and data are collected on the basis of the views and opinion of the participants by the interview. After this, the quantitative information is presented in the graphical manner that is helpful to quick understanding on the research study.
At the same time, in the research study of Masoud (2017), it is also found that quantitative information is collected from the survey methodology. In this, it is determined that in the both of the research study, the data and information are analysed by the statistic data analysis method that presented the result in the tabulation and graphical manner. However, it is found that the statistics data analysis method is more complex as compared to other because for conducting this analysis and to understand the findings of this method need some knowledge about the statistic method.
At the same time, it is also found that the research study of Masoud (2017) used the more superior approach as compared to other research study. It is because in this research study, the quantitative data and information has collected from the survey methodology. Beside of this, in the research study of the Weal and Saleh (2018), it is also found that researchers collected the data and information from the interview. The statistics data analysis method is effective with the survey methodology. Due to this, it can be said that the research study of the Masoud (2017) is more superior as compared to weal and saleh.
Creswell, JW 2014, Research Design: Qualitative, Quantitative, and Mixed Methods Approaches, 4th edn, Sage publications, Thousand Oaks, CA.
Masoud, N 2017, ‘An empirical study of audit expectation-performance gap: The case of Libya’, Research in International Business and Finance, vol. 41, pp. 1-15.
Pepper, A & Gore, J 2014, ‘The economic psychology of incentives: An international study of top managers’, Journal of World Business, vol. 49, no. 3, pp. 350-61.
Porter, B 1993, ‘An empirical study of the audit expectation-performance gap’, Accounting and Business Research, vol. 24, no. 93, pp. 49-68.
Weal, M & Saleh, A 2018, ‘Expanding the education role to narrow the audit expectation gap: exploring the expectation gap’s existence among accounting students’, The Applied Management Review, vol. 2, pp. 21-37.
Bosse, D.A. and Phillips, R.A., 2016. Agency theory and bounded self-interest. Academy of Management Review, 41(2), pp.276-297.
Boučková, M., 2015. Management accounting and agency theory. Procedia Economics and Finance, 25, pp.5-13.
DAILY, J.E., KIEFF, F.S. and WILMARTH JR, A.E., 2014. Introduction. In Perspectives on Financing Innovation (pp. 13-16). UK: Routledge.
Dawson, G.S., Denford, J.S., Williams, C.K., Preston, D. and Desouza, K.C., 2016. An examination of effective IT governance in the public sector using the legal view of agency theory. Journal of Management Information Systems, 33(4), pp.1180-1208.
Eikeland, P.O. and Skjærseth, J.B., 2016. Comparative Analysis. In Corporate Responses to EU Emissions Trading(pp. 271-300). UK: Routledge.
Flammer, C. and Bansal, P., 2017. Does a long‐term orientation create value? Evidence from a regression discontinuity. Strategic Management Journal, 38(9), pp.1827-1847.
Hur, W.M., Kang, S. and Kim, M., 2015. The moderating role of Hofstede’s cultural dimensions in the customer-brand relationship in China and India. Cross Cultural Management, 22(3), pp.487-508.
Kleven, H.J., Kreiner, C.T. and Saez, E., 2016. Why can modern governments tax so much? An agency model of firms as fiscal intermediaries. Economica, 83(330), pp.219-246.
Nevo, S., Nevo, D. and Pinsonneault, A., 2016. A Temporally Situated Self-Agency Theory of Information Technology Reinvention. Mis Quarterly, 40(1), pp.157-186.
Parker, D.W., Dressel, U., Chevers, D. and Zeppetella, L., 2018. Agency theory perspective on public-private-partnerships: international development project. International Journal of Productivity and Performance Management, 67(2), pp.239-259.
Shogren, K.A., Wehmeyer, M.L., Palmer, S.B., Forber-Pratt, A.J., Little, T.J. and Lopez, S., 2015. Causal agency theory: Reconceptualizing a functional model of self-determination. Education and Training in Autism and Developmental Disabilities, pp.251-263.
Smith, M., 2017. Research methods in accounting. US: Sage.
Song, J., Wang, R. and Cavusgil, S.T., 2015. State ownership and market orientation in China’s public firms: An agency theory perspective. International Business Review, 24(4), pp.690-699.
Teece, D.J., 2014. The foundations of enterprise performance: Dynamic and ordinary capabilities in an (economic) theory of firms. Academy of management perspectives, 28(4), pp.328-352.
Uwuigbe, U., Emeni, F.K., Uwuigbe, O.R. and Maryjane, A.C., 2016. IFRS adoption and accounting quality: Evidence from the Nigerian banking sector. Journal of Corporate Ownership and Control, 9(4), pp.187-196.