Agency Conflict in Accounting A Game-Theoretic Analysis Based on Nash Equilibrium and Earnings Quality

Agency conflict in accounting has traditionally been modeled as a linear principal-agent problem. However, this study argues that agency conflict is inherently a non-cooperative strategic game where managers and shareholders simultaneously anticipate each other's strategies under information asymmetry. Drawing on John Nash's equilibrium concept, we develop an extended causal framework linking divergent interests → information asymmetry → strategic earnings management → Nash equilibrium outcomes → earnings quality. Our analysis reveals two dominant equilibrium types: (i) a Pareto-optimal equilibrium characterized by low earnings management and trust-based monitoring, yielding high earnings quality; and (ii) a Pareto-inferior equilibrium marked by high manipulation and intense monitoring, yielding low earnings quality. Internal control quality and corporate governance strength serve as equilibrium shifters that determine which Nash equilibrium is selected. We derive policy implications for regulators, audit committees, and investors, suggesting that institutional designs altering the payoff structure for manipulation are more effective than direct honesty mandates. This study contributes to agency theory by reframing it within game theory and provides a unified causal model for understanding earnings quality as a system property emerging from strategic interaction

کلیدواژه ها:

agency conflict ، Nash equilibrium ، earnings quality ، earnings management ، game theory ، corporate governance