Financial statement information : the impact of investors and managers

This thesis investigates the mechanisms that shape financial statement information, taking two approaches. The first approach focuses on investors, the second concentrates on managers. The first approach assumes that financial statements are for investors. This view on the role of financial statements is the view adopted by the mainstream of financial accounting research. It is also the view supported by financial reporting standard setting bodies and advanced by textbooks. The idea that investors are the main audience for financial statements is widely accepted. In fact, this idea is so widespread that it creates a form of laziness in the minds of those advocating this view: few people question it. A subsequent other accepted idea is that investors depend on financial statement information, and that financial reporting should be regulated in order to protect investors against the capricious reporting behavior of managers. On the other hand, the fact that investors do not base their decisions predominantly on published financial statements information cannot be ignored. Also, capital markets are the most obvious institutions for dealing and hedging all forms of financial risks. Proponents of the view that investors depend on specific firms’ financial statement information neglect this function of capital markets. This is especially so when they express the idea that investors deserve protection against the opportunistic behavior of managers. These casual observations give reason to adopt an alternative viewpoint on the mechanism that shapes financial statement information.