Question: Use contracting theory to explain why firms (i, e., Boards of Directors acting on sharedholders behalf) would prefer to allow managers have no flexibility to

Use contracting theory to explain why firms (i, e., Boards of Directors acting on sharedholders’ behalf) would prefer to allow managers have no flexibility to choose policies.
Use contracting theory to explain why managers may also prefer to have a choice of accounting policies.

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Under contract theory firms are motivated to minimize the firms contracting costs One such cost arises from the fact that unforeseen circumstances may ... View full answer

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