Accounting Theory Assignment | Accounting Theories Assignment

Running head: ACCOUNTING THEORY
Accounting Theory
Name of the Student:
Name of the University:
Author Note

1ACCOUNTING THEORY
Table of Contents
Introduction......................................................................................................................................2
Journal Review................................................................................................................................2
Applicability of the innovation theory or the agency theory to Harvey Norman............................4
Conclusion.......................................................................................................................................5
References........................................................................................................................................6

2ACCOUNTING THEORY
Introduction
Accounting theories are the theories that have been developed over time for controlling
and regulating the various accounting treatments that are incorporated in the different corporate
entities all over the world. Accounting theories generally refers to the methodologies that have
been established in order to guide the preparation of a financial report. The accounting theories
have been modified over time in order to suit the current requirements of the corporate entities
and other stakeholders of business.
The journal article that has been chosen for the purpose of analyzing this particular study
is “Innovative Enterprise Solves the Agency Problem: The Theory of the Firm, Financial Flows,
and Economic Performance” by William Lazonick.
Journal Review
The journal that has been chosen in this particular project suggests that the dominant
ideology of the corporate governance has been to earn more profits. The primary tool for the
firms for elevating the economic performance has been increasing the amounts of revenue earned
instead of maximizing the shareholder value (Bosse and Phillips 2016).
This particular journal conveys the essential idea that the agency theory should be
replaced by the innovation theory. The author further supports this statement by stating in his
journal that the public shareholders do not invest in the productive assets of the company. The
agency theory proposes the maximization of the shareholder value, which can only be achieved
by the distribution of the free cash flow to the public stakeholders. The shareholders who are
holding onto the shares will receive a part of the reaped revenue as increased stock prices can be
achieved through stock repurchases. The agency theory indicates that the shareholders extract
value due to the fact that they assume risk of contribution to the processes that lead to the
creation of value. Therefore, at the time when the companies pay back the profits, the agency
theory characterizes these distribution as the as the return of capitals to the shareholders (Hoenen
and Kostova 2015).