3. Why might managers choose accounting methods that increase current period reported earnings? 12. Explain the three types of agency costs and their relationships to each other in the context of: (a) debt contracts (b) equity contracts. 16. Bonus plans are used to reduce the agency costs of equity. Describe the agency relationship giving rise to the agency cost of equity and explain how bonus plans can reduce particular types of agency problems. 20. In the context of positive accounting theory, political costs can reduce the value of firms significantly. (a) Give examples of how firms can be exposed to political costs. (b) Give examples of how a firm's exposure to political costs can influence the nature and/or content of the firm's annual report, particularly in relation to its accounting information. 25. The role of financial accounting is to provide information for making economic decisions to buy and sell shares. Evaluate this argument from a contracting perspective