ABSTRACT This study examines whether the increased managerial discretion associated with the implementation of ASC 606 is linked to changes in managerial agency behavior. Drawing on competing predictions from agency theory and stewardship theory, we investigate whether principles‐based accounting standards increase or reduce agency‐related outcomes. Using a panel of U.S. public firms and multiple measures of agency behavior, including abnormal investment activity and executive compensation, we find that the post‐ASC 606 period is associated with lower levels of managerial agency behavior. The association is strongest in industries characterized by complex revenue recognition and greater reliance on managerial judgment. Supplemental analyses of debt covenant structures indicate that lenders did not respond to ASC 606 by increasing covenant intensity or reliance on more restrictive covenant forms. Collectively, the findings are more consistent with stewardship theory than agency theory and suggest that principles‐based standards may influence managerial behavior beyond traditional financial reporting outcomes.
David Cabán (Fri,) studied this question.