In this section, we expand our discussion of the role of financial accounting information in the operation of specific governance mechanisms. An important example in this respect is DeAngelo’s (1988) study of the role of accounting information in proxy fights. She documents a heightened importance of accounting information during proxy fights by providing evidence of the prominent use of accounting numbers. She presents evidence that dissident stockholders typically cite poor earnings performance as evidence of incumbent managers’ inefficiency (and rarely cite stock price performance), and that incumbent managers use their accounting discretion to portray a more favorable impression of their.
