AGENCY PROBLEMS, INFORMATION ASYMMETRY, AND SOCIALLY RESPONSIBLE INVESTING IN THE WAKE OF CITIZENS UNITED: A CALL FOR THE DISCLOSURE OF POLITICAL CONTRIBUTIONS IN THE UNITED STATES

Abstract

This paper argues that with the pervasiveness of socially responsible investing (SRI) and in the wake of the Citizens United decision by the U.S. Supreme Court, economic and public policy environments have dramatically changed. Consequently, in order to fulfill one of accounting’s primary functions (i.e., providing credible information that can be used in monitoring and bonding activities to decrease total agency costs), today’s reports should disclose political contributions made by SEC-filing corporations. In the absence of such disclosure, firms may engage in a new kind of agency problem not anticipated by standard financial and accounting theories: that of agents pursuing profits in ways that are in direct opposition to the preferences of the firm’s ownership.