History repeats itself: the failure of rational choice models in corporate governance
History repeats itself: the failure of rational choice models in corporate governance
Conventional proposals to reform corporate governance based on the rational model of decision making may be insufficient in preventing future corporate debacles. Typically underestimated are the pressures from conflicts of interest and bias on reputational intermediaries. Judgements and choices made by auditors during professional engagements may not strictly adhere to the rational model of decision making. This is of significance with regard to the gatekeeper function of auditors and relevant legislation. A discussion on earnings management elaborates by suggesting that strictly numerical measures are not a reliable guide to the quality of corporate governance. It is suggested that our understanding of monitor behaviour in corporate governance would be improved by placing it on psychologically more realistic foundations. Some of these foundations are introduced
audit, earnings management, monitor failure, rational choice, bias, behavioural economics
191-210
Marnet, Oliver
6840910e-2e26-4e63-aa84-76c5c8d27877
2 February 2007
Marnet, Oliver
6840910e-2e26-4e63-aa84-76c5c8d27877
Marnet, Oliver
(2007)
History repeats itself: the failure of rational choice models in corporate governance.
Critical Perspectives on Accounting, 18 (2), .
(doi:10.1016/j.cpa.2005.11.010).
Abstract
Conventional proposals to reform corporate governance based on the rational model of decision making may be insufficient in preventing future corporate debacles. Typically underestimated are the pressures from conflicts of interest and bias on reputational intermediaries. Judgements and choices made by auditors during professional engagements may not strictly adhere to the rational model of decision making. This is of significance with regard to the gatekeeper function of auditors and relevant legislation. A discussion on earnings management elaborates by suggesting that strictly numerical measures are not a reliable guide to the quality of corporate governance. It is suggested that our understanding of monitor behaviour in corporate governance would be improved by placing it on psychologically more realistic foundations. Some of these foundations are introduced
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Published date: 2 February 2007
Keywords:
audit, earnings management, monitor failure, rational choice, bias, behavioural economics
Organisations:
Centre of Excellence for International Banking, Finance & Accounting
Identifiers
Local EPrints ID: 381167
URI: http://eprints.soton.ac.uk/id/eprint/381167
ISSN: 1045-2354
PURE UUID: 265960f7-272b-4339-95cf-3eedc004a1a6
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Date deposited: 24 Sep 2015 13:42
Last modified: 15 Mar 2024 03:48
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