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Optimizing Accounting and Wage Design: A Principal-Centric Approach to Solving the Agency Problem

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  • Chun-Hung Chen

Abstract

Purpose: This study aims to identify the optimal combination of accounting treatments and wage designs to address the agency problem. It presents a groundbreaking theoretical model by strategically integrating various accounting systems and wage designs. Design/Methodology/Approach: Departing from conventional paradigms, the study adopts a principal-centric approach, leveraging accounting treatments and wage designs to address the challenges of the agency problem. The text introduces three distinct accounting systems and two wage designs, showcasing the efficacy of "conservative accounting" in alleviating agency conflicts and recognizing the need to complement this approach with a "performance wage system" for optimal effectiveness. Findings: The research offers a fresh perspective on agency dynamics while providing actionable insights to decision makers. Practical Implications: This article significantly contributes to the academic discourse on agency theory, enhancing our understanding of organizational governance and opening new avenues for research. Originality/Value: This study embraces a holistic perspective by considering the effort of both the principal and the agent, reflecting on the natural world and yielding propositions that resonate strongly with practical scenarios.

Suggested Citation

  • Chun-Hung Chen, 2025. "Optimizing Accounting and Wage Design: A Principal-Centric Approach to Solving the Agency Problem," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 15(3), pages 130-158.
    • Handle: RePEc:ers:ijfirm:v:15:y:2025:i:3:p:130-158
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    References listed on IDEAS

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    More about this item

    Keywords

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    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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