Under this view, accounting practices evolve to mitigate contracting costs by establishing ex ante agreement among varying parties.
As an example, absent conservatism, managerial compensation agreements may reward managers based on current reports that later evidence indicates were unwarranted.
The opportunistic perspective holds the view that managers, who are agents to the principal, act to their self-interests.
Different types of hypotheses exist such as political cost, bonus plan and debt hypothesis that show what motives make the managers choose one accounting method over another.
Older managers will tend to ignore any research and development costs because it will lower current year profits affecting their income.