Transaction cost economics and nineteenth century fur trade accounting: relevance of a contemporary theory

In examining how the historical, fur-trading Hudson's Bay Company (HBC) controlled the agency problem, Carlos and Nicholas (1990) concluded that accounting in general was one of the many techniques used. This study expands on the work of Carlos and Nicholas. For the period from 1821 to 1860, it examines original documents in addition to published documents used by Carlos and Nicholas. It uses a specific agency theorytransaction cost economics (TCE). Because of the uncertainty that prevailed through communication lags caused by the great distances, TCE suggests that the HBC would develop extensive directing and monitoring mechanisms and use what is now known as management accounting. The data suggest that the HBC conformed well to the TCE predictions that directing and monitoring mechanisms would be highly developed. The internal accounting had many features comparable to contemporary management accounting.