Journal of Accounting and Taxation
Subscribe to JAT
Full Name*
Email Address*

Article Number - 12339F31292

Vol.5(2), pp. 38-47 , July 2013
ISSN: 2141-6664

 Total Views: 0
 Downloaded: 0

Full Length Research Paper

Role of the agency theory in implementing management's control

Mohammad Namazi
  • Mohammad Namazi
  • Department of Accounting, College of Economics, Management and Social Science, Shiraz University, Iran.
  • Google Scholar

 Accepted: 15 March 2012  Published: 31 July 2013

Copyright © 2013 Author(s) retain the copyright of this article.
This article is published under the terms of the Creative Commons Attribution License 4.0

The major purpose of this article is to analyze the role of the "Agency Theory" in implementing effective control mechanisms. In effect, various control paradigms under the following situations are elaborated: a) When the agent's control system is merely based on the output under the condition of uncertainty; b) When the control mechanism is based on the output, and information about agent's action or effort; c) When the agent's monitoring control is based on the output, agent's action and additional variables. It is concluded that agency theory posits different organizational, behavioral, economical and controlling roles, and it is a potent framework which can be extricated in promulgation of the management control systems. Furthermore, the implementation of a control mechanism depends on the amount and contents of the public and/ or private information that exist in the domain of the managerial accounting system. The disseminated information and the concurrent variables surrounding the agency relations are also vital elements in creating any control system. Finally, the optimal control mechanism under each preceding conditions are revealed.


Key words: Agency theory, management control, accounting information systems, information asymmetry.


Alchian AA, Demsetz H (1972). Production, information costs and economic organization. Am. Econ. Rev. pp.777-795.
Anthony RN (1965). Planning and control systems: A framework for analysis. Boston: Harvard Graduate School of Business.
Arrow KJ (1971). Political and economic evaluation of social effects and externalities. in Frontiers of quantitative economics, ed. By M. Intriligator (North-Holland).
Baiman S (1982). Agency research in managerial accounting: a survey. J. Account. Lit. (1):154-213.
Baiman S (1990). Agency research in managerial accounting: A second look. Accounting, Organization and Society. 15(4):341-371.
Demski JS (1980). A simple case of indeterminate financial reporting. Information Economics and Accounting Research, ed. By G. Lobo and M. Maher (University of Michigan: Ann Arbor).
Demski JS, Dye RA (1999). Risk, return, and moral hazard. J. Account. Res. 37(1):27-55.
Demski JS, Feltham G (1976). Cost determination: A conceptual approach (Ames: Iowa State University Press).
Demski JS, Fellingham JC, Lin HH (2009). Tension relevance. J. Manage. Account. Res. (21):241-248.
Diamond DW, Verrecchia RE (1982). Optimal managerial contracts and equilibrium security prices. J. Financ. pp.275-287.
Dikolli SS (2001). Agent employment horizons and contracting demand for forward-looking performance measures. J. Account. Res. 39(3):481-494.
Eldenburg L, Krishnan R (2003), Public versus private governance: A study of incentives and operational performance. J. Account. Econ. pp.377-404.
Eisenhardt KM (1989). Agency theory: An assessment and review. Acad. Manage. Rev. 14(1):57-74.
Gjesdal F (1981). Accounting for stewardship. J. Account. Res. Spring:208-231.
Harris M, Raviv A (1976). Optimal incentive contracts with imperfect information. Working paper, Carnegie-Mellon University.
Harris M, Raviv A (1978). Some results on incentive contracts with application to education and employment, health insurance, and law enforcement. Am. Econ. Rev. pp.20-30.
Holmstrom BR (1979). Moral hazard and observability. Bell J. Econ. Spring:74-91.
Horngren CT, Datar SM, Rajan M (2012). Cost accounting: A managerial emphasis", 14th edition, Prentice Hall.
Jensen MC, Meckling WH (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. J. Financ. Econ. pp.305-360.
Kaplan R (1984). The evolution of management accounting. Account. Rev. pp.390-418.
Kaplan R, Atkinson AA (2012). Advanced management accounting. Prentice Hall.
Kornish LJ, Levine CB (2004). Discipline with common agency: the case of audit and non-audit services. Account. Rev. 79(1):173-200.
Kren L, Tyson T (2009). Trade-offs in objective and subjective performance evaluation: a case study examining the validity of the agency theory prediction. Manage. Account. Quart. pp.12-23.
Lan L, Heracleous L (2010). Rethinking agency theory: The view from law. Acad. Manage. Rev. 35(2):294-314.
Namazi M (1983). Accounting information and optimal incentive contracts in a multi-objective setting. Ph.D. dissertation, University of Nebraska, Lincoln. USA.
Namazi M (1985). Theoretical developments of principal-agent employment contract in accounting: the state of the art. J. Account. Lit. 4:113-163.
Osterman P (2006). Overcoming oligarchy: culture and agency in social movement organizations. Adm. Sci. Quart. 51(4):622-649.
Outley D (1995). Management control, organizational design and accounting information systems. Published in Issues in management accounting, 2nd Edition, Edited by Ashton D, Hopper T, and Scapens RW, Prentice-Hall Europe.
Pacharn P (2008). Accounting choice and optimal incentive contracts: a role of financial reporting in management performance evaluation. Adv. Manage. Account. 171:289-316.
Penno M (1984). Asymmetry of Pre-decision information and management accounting. J. Account. Res. Spring:177-191.
Radner R (1981). Monitoring cooperative agreements in a repeated principal-agent relationship. Econometrica pp.1127-1148.
Ross SA (1973). The economic theory of agency: the principal's problem. Am. Econ. Rev. pp.134-139.
Shavell S (1979). Risk-sharing and incentives in the principal-agent relationship. Bell J. Econ. Spring:55-73.
Spence M, Zeckhauser R (1971). Insurance, information, and individual action. Am. Econ. Rev. pp.380-391.
Stevens DE, Thevaranjan A (2010). A moral solution to the moral hazard problem. Account. Organ. Soc. 35(1):125-139.
Wilson RB (1968). The theory of syndicates. Econometrica pp.119-132.
Zimmerman JL (2010). Accounting for decision making & control. 7th edition, McGraw-Hill; Irwin.


APA (2013). Role of the agency theory in implementing management's control. Journal of Accounting and Taxation, 5(2), 38-47.
Chicago Mohammad Namazi. "Role of the agency theory in implementing management's control." Journal of Accounting and Taxation 5, no. 2 (2013): 38-47.
MLA Mohammad Namazi. "Role of the agency theory in implementing management's control." Journal of Accounting and Taxation 5.2 (2013): 38-47.

Subscription Form