BUS 421 Chapter Notes - Chapter 8: Financial Statement, Credit Risk

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Takes the view that firms organize themselves in the most efficient manner, so as to maximize their prospects for survival. The most efficient form of corporate governance depends on factors such as its legal and institutional environment, technology, and the degree of competition. Studies the role of financial accounting information in moderating information asymmetry between contracting parties. Contributes to efficient stewardship and efficient corporate governance: must attain an optimal tradeoff between the benefits and costs of contracting. Assumes rationality: studies how the conflict between stakeholders is resolved. Envisages implicit contract, which arises from continuing business relationship: trust generated at the lowest cost to firm. Believes in market: asserts that demands for financial accounting information should be met by market forces, with the role of standard setting being to provide general principles. 8. 3 sources of efficient contracting demand for financial accounting information.

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