Contemporary Accounting and Management Accounting Issues: Agency Theory

This research paper explores the role of agency theory and related factors in maintaining effective carbon disclosure in organizations. It discusses the significance of carbon emission disclosure for organizations in consideration to increasing financial performance through employing agency theory.

Running head: ACCOUNTING ISSUES AND AGENCY THEORY
MGT723 Research Project
Semester 2 2017
Assessment Task 1: Research Proposal
Student Name: XXX
Your assigned research topic*: Contemporary Accounting and Management Accounting Issues:
Agency Theory
Draft Research Question: What is the role of agency theory and related factors in maintaining
effective carbon disclosure in organizations?
Title: XXX
Submission Date: XXX

1ACCOUNTING ISSUES AND AGENCY THEORY
Table of Contents
Literature Review................................................................................................................2
Motivation........................................................................................................................2
Practical Motivation.....................................................................................................2
Theoretical Motivation................................................................................................2
Conflicting Previous Results.......................................................................................3
Agency Theory............................................................................................................4
Key Theoretical Constructs.........................................................................................4
Relationship between Slack and Information Asymmetry..........................................4
Conceptual Framework Model............................................................................................5
Hypothesis...........................................................................................................................6
Proxy Measures for Theoretical Constructs........................................................................7
Research Method.................................................................................................................8
Data Collection................................................................................................................8
Sampling and Size of Sample..........................................................................................8
Method of Data Analysis.................................................................................................8
References..........................................................................................................................10
Appendices........................................................................................................................11

2ACCOUNTING ISSUES AND AGENCY THEORY

3ACCOUNTING ISSUES AND AGENCY THEORY
Literature Review
Motivation
Practical Motivation
Coad, Jack and Kholeif (2015) stated that the vital sources of carbon emission are there in
organizations and for this reason they might contribute in decreasing the emission level. With
emergence of Corporate Social Responsibility concept within nation’s regulatory framework, the
organizations are becoming aware. Moreover, they are also considering carbon emission
disclosure as this is related with the financial performance. Hoque (2018) indicated that the
major concern of the environment is increasing carbon emission level by organizations for the
reason that it greatly impacts global warning along with increasing harmful environmental
consequences. Carbon emissions also impacts business conducts like investment, competition
along with investor and stakeholder activities. This also greatly puts huge impact on the goods
and raw materials supply along with government co-operation risks and decreased share prices.
In contrast, Christensen, Nikolaev and Wittenberg‐Moerman (2016) revealed that there is
different connection between carbon emissions performance disclosure, financial performance
and company’s growth. Voluntary disclosure by organizations indicates their management
efficiency of emissions. This leads to development of shareholders interest in consideration to
business investment within the organization relied on its potential. For this reason, carbon
emission disclosure is a vital concern for all international organizations.
Theoretical Motivation
This research is intended to explain the significance of carbon emission disclosure for the
organizations in consideration to increasing financial performance through employing agency

4ACCOUNTING ISSUES AND AGENCY THEORY
theory. Research carried out by Bosse and Phillips (2016) explained that the carbon emission
disclosure has great impact on financial performance of organizations. Organizations must focus
on decreasing the environmental concerns that can gradually offer economic advantages. For this
reason, they can voluntarily disclose that an organization cares for its environment and focus on
considering climate change due to operations of the organization. Nevo, Nevo and Pinsonneault
(2016) indicated that climate change is essential concern for the research. Carbon disclosure by
the organizations must be voluntary and accurate relied on real figures and facts that can
facilitate shareholders in determining real financial performance and value of the organization.
This also focuses on facilitating the organization in order to prove the environmental
effectiveness. For this research, it will be considered to realize the effect of carbon emission
disclosure on the organizations non-financial performance as well as financial performance.
Conflicting Previous Results
Ott, Schiemann and Günther (2017) gathered that this attracts shareholders for investing
within the company attaining financial benefits for the organization. Moreover, from
administrative viewpoint an organization might follow CSR policy for maintaining an effective
relationship within the legal and government bodies. This effective relationship also increases
reputation along with company’s goodwill. Bosse and Phillips (2016) added that on the other
hand there is a relationship between the suppliers and consumers. This is because they turn out to
be stronger as consumers all through the world are environment conscious and contribute to
efforts that focuses on environment protection.

5ACCOUNTING ISSUES AND AGENCY THEORY
Agency Theory
Depoers, Jeanjean and Jérôme (2016) explained agency theory as prices that explain the
relationship between agents and principles in consideration to a particular problem. The major
reason of such issue and agents spreading the issue can be recognized using agency theory.
Key Theoretical Constructs
Pepper and Gore (2015) stated that based on the agency theory, the expenses related with
environmental responsibilities increases the profit of the organization and for this reason,
environmental activity has negative impact on a company’s profitability. These researchers also
indicated that there exists a neural relationship between environmental ad company
performances. Moreover, they contend that a company’s ideal level of interest within social
environmental responsibility might be analyzed within an indistinguishable path through taking
into consideration supply and demand sides. Shogren et al. (2015) evidenced that they also
indicate that organizations that does not take part in environmental responsibility will offer these
products at cheaper rate. Moreover, the organizations that are involved in CSR might provide
higher prices for the products. It can also be stated that environmental and financial performance
has neutral relationship.
Relationship between Slack and Information Asymmetry
Shogren et al. (2015) explained through the use of agency theory that because of the
climate change effect on the economy there are several nations that are making attempts in
decreasing the emission disclosure and measurement. Such efforts are relied on realizing the
financial market factor pressure and slack for business carbon emission disclosure in several
sectors. This can facilitate the programs and incentives for encouraging meeting and
participation for national targets (Bosse and Phillips 2016).

6ACCOUNTING ISSUES AND AGENCY THEORY
Conceptual Framework Model
The agency theory can be employed as a theoretical model in order to test relationships
between the company’s financial and non-financial performance and carbon emission disclosure.
Bosse and Phillips (2016) evidenced that based on agency theory prediction, the performance of
carbon emission of an organization also generates non-financial effect on the operations and
business of the organization. These non-financial impacts indirectly lead to the financial
influence and the carbon emission disclosure leads to development of effective company
reputation within the trading market.
Figure 1: Conceptual Framework
(Source: Pepper and Gore 2015)
The theoretical framework indicated above explained that the agency theory and the
related variables are related with carbon disclosure. The effect of company’s responsibility to
investors along with financial debt holders resulted in investors request for disclosure in order to
facilitate them to analyze the risk and return of the organization that can support investment
decision. The managers are observed to disclosure only because of proprietary costs as well as
uncertainty (Pepper and Gore 2015). For this reason, the conceptual framework explained that
Carbon
Disclosure Agency Theory
Financial market
factor pressure
Information
asymmetry
Slack

7ACCOUNTING ISSUES AND AGENCY THEORY
failure of information disclosure might lead to information asymmetry between the investment
providers and management. This can facilitate in increasing organization’s investment expenses.
The conceptual framework explained through the use of agency theory that because of
the climate change effect on the economy there are several nations that are making attempts in
decreasing the emission disclosure and measurement. Such efforts are relied on realizing the
financial market factor pressure and slack for business carbon emission disclosure in several
sectors. This can facilitate the programs and incentives for encouraging meeting and
participation for national targets (Bosse and Phillips 2016). Financial market factors impact
company’s responsibility towards investors along with financial debt holders. This facilitated
them to ask for information for evaluating real value of the company and for enabling investment
judgment along with company ownership. This has a considerable association with the reports.
Hypothesis
The hypotheses that are to be tested through the research on contemporary and
management accounting issues in consideration to Agency theory is explained under:
 H1: The carbon emissions disclosure by the organizations leads to opposite relationship
between the environmental responsibility and profitability effect on growth, sustainability
and profitability of an organization
 H2: Target slack will be more in the initial year within which the targets are set
 H3: Target slack will be more in the existence of performance-based incentives
Proxy Measures for Theoretical Constructs
Theoretical Proxy measure Dependent (DV), Source

8ACCOUNTING ISSUES AND AGENCY THEORY
Construct Independent (IV)
Target slack will
be greater in the
first year in which
targets are set
based on agency
theory
Increase in
remuneration
and being able to
attain the target
in case
unexpected
factors are
present.
Slack is deemed to
be the dependent
variable
The target that is explained in
CDP. Previous research
available in budgetary process
and incentives for managers.
Target slack will
be greater in the
presence of
performance
based incentives
based on agency
theory
Information
asymmetry is
observed to
decrease with
time. This is
measured as the
number of years
before the
company has
been setting
targets for
emission of
carbon.
Independent
variable is deemed
to be the
information
asymmetry
Data related with this variable
will be gathered through
evaluating the performance
based incentives of the
company that can increase the
pressure to generate target
slack.

9ACCOUNTING ISSUES AND AGENCY THEORY
Research Method
Data Collection
The research on the agency theory and carbon disclosure will consider employing
primary as well as secondary data that can facilitate in attaining desired research outcomes.
Gathered quantitative data signifies the information section which can be evaluated for collecting
data in alignment with the research results. Collection of the secondary data for investigating
“Contemporary Accounting and Management Accounting Issues: Agency Theory” will be
collecting data from authenticate government websites and journals (Taylor, Bogdan and
DeVault 2015). Primary data might be collected from employing the technique of questionnaire
survey. This is the reason for which suitable survey respondents has been chosen to participate
within the process of survey and for obtaining reliable research results on agency theory practice
along with carbon disclosure theory.
Sampling and Size of Sample
Non-probability sampling method will be used in this research. This sampling is based on
the subjective judgment of researcher in opposition to the random selection (Silverman 2016). In
order to attain results from the research, 5 managers of the companies operating in Australia will
be selected for taking part in the survey process. The gathered responses will be evaluated for
attaining views on agency theory and its relevance on addressing carbon disclosure issues.
Method of Data Analysis
In order to attain relevant research results certain statistical methods will be employed
such as MS Excel and graphical representation of data. This can facilitate in evaluating the
opinions of the survey participants and can properly plan, design and represent collected data.

10ACCOUNTING ISSUES AND AGENCY THEORY
Moreover, quantitative data will be represented through tables and graphs that can ensure the
clarity and authenticity of collected data (Flick 2015). Pearson correlation test will be carried out
that will ensure the reliability and validity of data. In order to test the relationship between the
dependent and independent variables, correlation and regression analysis will be carried out in
this research.

11ACCOUNTING ISSUES AND AGENCY THEORY
References
Bosse, D.A. and Phillips, R.A., 2016. Agency theory and bounded self-interest. Academy of
Management Review, 41(2), pp.276-297.
Christensen, H.B., Nikolaev, V.V. and WITTENBERG‐MOERMAN, R.E.G.I.N.A., 2016.
Accounting information in financial contracting: The incomplete contract theory
perspective. Journal of accounting research, 54(2), pp.397-435.
Coad, A., Jack, L. and Kholeif, A.O.R., 2015. Structuration theory: reflections on its further
potential for management accounting research. Qualitative Research in Accounting &
Management, 12(2), pp.153-171.
Depoers, F., Jeanjean, T. and Jérôme, T., 2016. Voluntary disclosure of greenhouse gas
emissions: Contrasting the carbon disclosure project and corporate reports. Journal of Business
Ethics, 134(3), pp.445-461.
Flick, U., 2015. Introducing research methodology: A beginner's guide to doing a research
project. Sage.
Hoque, Z., 2018. Methodological issues in accounting research. Spiramus Press Ltd.
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.
Ott, C., Schiemann, F. and Günther, T., 2017. Disentangling the determinants of the response
and the publication decisions: The case of the Carbon Disclosure Project. Journal of Accounting
and Public Policy, 36(1), pp.14-33.

12ACCOUNTING ISSUES AND AGENCY THEORY
Pepper, A. and Gore, J., 2015. Behavioral agency theory: New foundations for theorizing about
executive compensation. Journal of management, 41(4), pp.1045-1068.
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.
Silverman, D. ed., 2016. Qualitative research. Sage.
Taylor, S.J., Bogdan, R. and DeVault, M., 2015. Introduction to qualitative research methods: A
guidebook and resource. John Wiley & Sons.
Appendices
Questionnaire for Managers
1. To which stakeholders does the company report CSR information o carbon emissions?
2. Does the company raise awareness within the organization regarding carbon emissions
issue?
3. Please share the ways in which the company has an environmental sustainability
responsible employee?
4. How can you say that the management person is responsible for corporate disclosure
compliance?
5. What are the formal environmental policies and continuous improvement policies
followed by the company?