Optimizing Accounting and Wage Design: A Principal-Centric Approach to Solving the Agency Problem

Chun-Hung Chen

International Journal of Finance, Insurance and Risk Management, 2025, vol. 15, issue 3, 130-158

Abstract: Purpose: This study aims to identify the optimal combination of accounting treatments and wage designs to address the agency problem. It presents a groundbreaking theoretical model by strategically integrating various accounting systems and wage designs. Design/Methodology/Approach: Departing from conventional paradigms, the study adopts a principal-centric approach, leveraging accounting treatments and wage designs to address the challenges of the agency problem. The text introduces three distinct accounting systems and two wage designs, showcasing the efficacy of "conservative accounting" in alleviating agency conflicts and recognizing the need to complement this approach with a "performance wage system" for optimal effectiveness. Findings: The research offers a fresh perspective on agency dynamics while providing actionable insights to decision makers. Practical Implications: This article significantly contributes to the academic discourse on agency theory, enhancing our understanding of organizational governance and opening new avenues for research. Originality/Value: This study embraces a holistic perspective by considering the effort of both the principal and the agent, reflecting on the natural world and yielding propositions that resonate strongly with practical scenarios.

Keywords: Agency problem; conservative accounting; neutral accounting; liberal accounting; wage design. (search for similar items in EconPapers)
JEL-codes: J31 J54 M41 M52 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ers:ijfirm:v:15:y:2025:i:3:p:130-158

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