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Contemporary Issues in Management Accounting$
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Alnoor Bhimani

Print publication date: 2006

Print ISBN-13: 9780199283361

Published to Oxford Scholarship Online: May 2007

DOI: 10.1093/acprof:oso/9780199283361.001.0001

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Contract theory analysis of managerial accounting issues 1

Contract theory analysis of managerial accounting issues 1

(p.20) 2 Contract theory analysis of managerial accounting issues1
Contemporary Issues in Management Accounting

Stanley Baiman

Oxford University Press

Contract theory has become the dominant analytical research paradigm in managerial accounting over the last two decades, informing the managerial accounting literature both directly and indirectly. In the former case, formal contract theory modelling of managerial accounting issues has provided important insights into the design and role of managerial accounting systems. In the latter case, many of the hypotheses tested in recent behavioural and empirical research in managerial accounting have been derived from informal reasoning based on contract theory. Thus, any recipient of recent and future managerial accounting research would benefit from understanding contract theory. This chapter seeks to provide that understanding. It begins with a non-technical explanation of the contract theory model and a demonstration of how two types of incentive problem are formulated within that framework. It then discusses three managerial accounting issues to which formal contract theory analysis has been applied.

Keywords:   contract theory model, incentive conflict, variance analysis, performance measures, compensation systems

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