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What Do Shareholders Do? Accounting, Ownership and the Theory of the Firm: Implications for Corporate Governance and Reporting

Listed author(s):
  • Biondi Yuri

    (CNRS, France)

In the last three decades, corporate governance and reporting have been confronted to a drift toward shareholders’ primacy and value, and the revival of old-fashioned proprietary views against entity views on the business firm. This paper develops an accounting perspective of the relationship between shareholding and the inner congeries of the enterprise entity. These congeries require an accounting system, instead of a market price system, to deal with. Theoretical insights and improved accounting reporting methods are then presented to better represent and control the relationship between shareholding and the business firm, based upon the distinction between shareholders’ income and equity from income and equity to the enterprise entity. This distinction is especially important in case of goodwill, asset revaluations and share buybacks, as well as share issuance (use) for employee benefits and business combination considerations. Absent this distinction, accounting systems might enable corporate Ponzi schemes (through the corporate shield) by insiders (either executive management or controlling blockholders) to the detriment of other stakeholders, including outsider shareholders, and the continuity of the business enterprise over time.

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Article provided by De Gruyter in its journal Accounting, Economics, and Law.

Volume (Year): 2 (2012)
Issue (Month): 2 (June)
Pages: 1-29

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Handle: RePEc:bpj:aelcon:v:2:y:2012:i:2:n:5
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  1. Yuri Biondi & Arnaldo Canziani & Thierry Kirat, 2007. "The Firm as an Entity: Implications for Economics, Accounting, and the Law," Post-Print halshs-00203355, HAL.
  2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
  3. Baker, H. Kent & Singleton, J. Clay & Veit, E. Theodore, 2011. "Survey Research in Corporate Finance: Bridging the Gap between Theory and Practice," OUP Catalogue, Oxford University Press, number 9780195340372.
  4. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  5. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  6. Merino, Barbara D., 1993. "An analysis of the development of accounting knowledge: A pragmatic approach," Accounting, Organizations and Society, Elsevier, vol. 18(2-3), pages 163-185, April.
  7. Veblen, Thorstein, 1904. "Theory of Business Enterprise," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number veblen1904.
  8. Adolf A. Berle, 1965. "The Impact of the Corporation on Classical Economic Theory," The Quarterly Journal of Economics, Oxford University Press, vol. 79(1), pages 25-40.
  9. Charles J. Bullock, 1901. "Trust Literature: A Survey and a Criticism," The Quarterly Journal of Economics, Oxford University Press, vol. 15(2), pages 167-217.
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