A Framework for Research on Corporate Accountability Reporting

Posted: August 26th, 2021

A Framework for Research on Corporate Accountability Reporting

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A Framework for Research on Corporate Accountability Reporting

Literature Review

            The framing of corporate accountability necessitates a delegation-based view that is important in studying the nature of a specific delegation when reporting accurately about management decisions. There are two natures of the delegation-based view approach to accountability – explicit and implicit (Ramanna, 2013). Explicit delegation highlights an existing responsibility-oriented relationship, where the shareholders mandate the chief executive officer with corporate management decisions. Similarly, the chief executive officer is assigned to report back to the shareholders. On the contrary, implicit delegation does not carry a form of duty to report the corporate management responsibilities, for example, the case of the public delegating environmental management to an oil company (Ramanna, 2013). Therefore, the explicit delegation is understood from the concept of formal and complete contracting in the sense that one can assess the results of the anticipated delegates. Nonetheless, the implicit delegation does not have features of a complete contracting as transaction costs like bookkeeping preclude such possibility (Ramanna, 2013). Therefore, financial reporting affects corporate management decisions by establishing informative and effective accountability as a foundation for enhancing the working principles of incomplete and relational contracts.

            Apart from that, this delegation-based view of accountability may sometimes underscore the fact that not all relationships between shareholders and firm constituents are primarily delegated (Ramanna, 2013). Instead, such relationships may depict other factors like the constituency’s ownership claims and monitoring powers over the discretion of the shareholders. Imperatively, the ownership claims of the constituents underline the possibility of a delegation ascribing to legitimacy (bound by the rule of law) or illegitimacy (extortion) (Ramanna, 2013). However, the monitoring power is associated with a weak principal sincethe delegator’s powers are subject to industrial as well as political economies. Equally, the ownership claims together with the monitoring powers of a constituency over a shareholder might be arranged on a continuous scale in such a way that “weak” and “strong” are considered parameters. For example, a constituency may have either weak or strong ownership claims on allocated resources under the discretion of the shareholders (Ramanna, 2013). Likewise, the shareholders may withhold the control in a bid to let the constituency enjoy either strong or weak monitoring powers (Ramanna, 2013). Hence, the classification of both the ownership claims and monitoring powers offers an opportunity to create a yardstick of testing the suitability of the delegation-based view approach to corporate accountability reporting. 

            According to Ramanna (2013), bondholders are regarded as having strong ownership claims on resources of a company and strong monitoring powers in the sense that the shareholders cannot control them. Notably, the strength of these “strong” relational factors may vary from one country to another. For instance, the strength of the ownership claims and monitoring powers may be ranked highly under the jurisdiction of developed nations that ascribe to common-law (Ramanna, 2013). Similarly,employees have a strong ownership claim on the resources of a company, especially if the management strictly adheres to work safety (Ramanna, 2013). However, the question of whether the employees enjoy their monitoring powers or not is subject to the strength of labor unions and appropriateness of the relevant labor laws. For example, unlike in China, unlike Germany, the employees in Germany have strong ownership claims on the resources of a company and the monitoring powers (Ramanna, 2013). Therefore, the ranking strength of a constituency in terms of the ownership claims and monitoring powers would likely impact the quality of corporate accountability reporting.

References

Ramanna, K. (2013). “Commentary: A framework for research on corporate accountability reporting.” Accounting Horizons, 27(2), 409-432. https//doi.org//.10.2308/acch-50412