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Agency Theory: An Assessment and Review
Author(s): Kathleen M. Eisenhardt
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? Academy of Management Review, 1989, Vol. 14, No. 1, 57-74.
Agency Theory: An Assessment
and Review
KATHLEENM. EISENHARDT
Stanford University
Agency theory is an important, yet controversial, theory. This paper
reviews agency theory, its contributions to organization theory, and the
extant empirical work and develops testable propositions. The conclusions
are that agency theory (a) offers unique insight into in-formation systems,
outcome uncertainty, incentives, and risk and (b) is an empirically valid
perspective, particularly when coupled with complementary perspectives.
The principal recommendation is to in-corporate an agency perspective in
studies of the many problems having a cooperative structure.
One day Deng Xiaoping decided to take
his grandson to visit Mao. "Call me
granduncle," Mao offered warmly.
"Oh, I certainly couldn't do that,
Chairman Mao," the awe-struck child
replied. "Why don't you give him an
apple?" suggested Deng. No sooner hadMao done so than the boy happily
chirped, "Oh thank you, Granduncle."
"You see," said Deng, "what in-
centives can achieve."
("Capitalism,"1984, p. 62)
purposes of this paper are to describe
agency theory and to indicate ways in which
organiza-tional researchers can use its
insights. The pa-per is organized around
four questions that are germane to
organizational research. The first asks the
deceptively simple question, What is agency
theory? Often, the technical style, math-
ematics, and tautological reasoning of the
agency literature can obscure the theory.
More-
over, the agency literature is split into two
Agency theory has been used by scholars
in accounting (e.g., Demski & Feltham,
1978), eco-
nomicsnance
Lal,
ence
ior(e.g.,
and
Yet,it isstill surroundedbycontroversy.
ponents argue that a revolution is at hand
and that "the foundation for a powerful
theory of or-ganizations is being put into
place" (Jensen, 1983, p. 324). Its detractors
call it trivial, dehu-manizing, and even
"dangerous" (Perrow, 1986, p. 235).
Which is it: grand theory or great
sham? The
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camps (Jensen, 1983), leading to
differences in interpretation. For
example, Barney and Ouchi (1986)
argued that agency theory emphasizes
how capital markets can affect the
firm, whereas other authors made no
reference to capital markets at all
(Anderson, 1985; Demski & Feltham,
1978; Eccles, 1985; Eisenhardt, 1985).
The second question is, What does
agency theory contribute to organizational
theory? Pro-ponents such as Ross (1973,
p. 134) argued that "examples of agency
are universal." Yet other scholars such
as Perrow (1986) claimed that agency
theory addresses no clear problems, and
Hirsch and Friedman (1986) called it
exces-sively narrow, focusing only on
stock price. For economists, long
accustomed to treating the or-
57
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ganization
firm,agency
for organizational
theoryisnotsoobvious.
Thethird question
icallyvalid?The powerof the empirical
onagency
nomena
light
"hardlysubjecttriestoexplain
224).Perrow
beingunrealisticallyone-sided
neglect
The finalquestion
are
use
agency
requires
theagency
leverage.
The principal
present
tionsofthetheoryto
andevaluate
overallconclusion
fuladdition
agency
tainty,
novel
and
theory,
mentary
Origins of Agency Theory
During the 1960s and early 1970s,
economists explored risk sharing among
individuals or groups (e.g., Arrow, 1971;
Wilson, 1968). This literature described
the risk-sharing problem as one that
arises when cooperating parties have
different attitudes toward risk. Agency
theory broadened this risk-sharing
literature to include the so-called agency
problem that occurs when cooperating
parties have different goals and di-
58
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vision
1973). Specifically,
theubiquitous
oneparty(theprincipal)delegates
other
Agency
shipusing
Meckling,
Agency
twoproblemsthat canoccurin agency
ships.The first is theagency
when
agent
for theprincipaltoverifywhat
tuallydoing.Theproblem
cipalcannotverifythattheagent
appropriately.
sharingagenthavedifferentattitudestoward
problem
maypreferdifferentactionsbecause
ferentrisk preferences.
Because
governing
paland
determining the most efficient contract
govern-ing the principal-agent
relationship given as-sumptions about
people (e.g., self-interest,
bounded
tions(e.g.,
information
which
question
tract
moreefficientthananoutcome-oriented
tract(e.g.,
of propertyrights,market governance)?
view
The agencystructure is applicable
of settings,rangingfrom macrolevelasregulatory
nomena such as blame, impression
manage-ment, lying, and other expressions
of self-interest. Most frequently, agency
theory has been applied to organizational
phenomena
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Table 1
Agency Theory Overview
Key idea Principal-agent relationships
should
reflect efficient
organization
of
information and risk-
bearing costs
Unit of Contract between principaland agent
analysis
positivist and principal-agent (Jensen,
1983). The two streams share a common
unit of analysis: the contract between the
principal and the agent. They also share
common assumptions about people,
organizations, and information. However,
they differ in their mathematical rigor,
dependent variable, and style.
Human
assumptions
Organizational
assumptions
Information
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assumption
Contracting
problems
Problem
domain
such as
1988; Eisenhardt,
fication
boardrelationships(e.g.,
Kosnik,
tures(e.g.,Argawal& Mandelker,
& Meckling,son, 1985; Eccles,
1988;Zenger,
agency
basic
agent
ior,but
tudes
From its roots in information economics, agency theory has developed along two
lines:
59
Positivist Agency Theory
Positivist researchers have focused on identi-fying situations in which the principal and
agent
arelikelyto have
scribingthegovernance
the agent's
search agent
havefocusedalmost
case of the principal-agent
owners
tions(Berle& Means,
Threearticleshavebeenparticularlyinfluen-
tial.Jensen
ownership
inghowequity
managers'
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(1980) discussed
labormarkets
are used
top executives.
scribed
informationsystemthatthestockholders
largecorporations
portunismof topexecutives.
leagues
extended
suchasgolden
ing.
Froma
stream
ing thegovernance
agency
thisinterestas"whycertain
tionsarise."ernance
positiviststream.
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come-based contracts are effective in curbing agent opportunism. The argument is that
such contracts coalign the preferences of agents with those of the principal because the
rewards for both depend on the same actions, and, there-fore, the conflicts of self-
interest between princi-pal and agent are reduced. For example, Jensen and Meckling
(1976) described how increasing the firm ownership of the managers decreases
managerial opportunism. In formal terms,
Proposition 1: When the contract between the principal and agent is outcome based, the
agent is more likely to behave in the interests of the principal.
The second proposition is that information sys-tems also curb agent opportunism.
The argu-ment here is that, since information systems in-form the principal about what
the agent is actu-ally doing, they are likely to curb agent oppor-tunism because the
agent will realize that he or she cannot deceive the principal. For example, Fama (1980)
described the information effects of efficient capital and labor markets on manage-rial
opportunism, and Fama and Jensen (1983) described the information role that boards
of di-rectors play in controlling managerial behavior. In formal terms,
Proposition2: Whenthe principal
tionto verifyagent
likelyto behave
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At its best,positivistagency
gardedas
more com
1983). However,
nizationalMichaels,
bymicroeconomists
rigor (Jen
agency th
search
terest ("Meet Mike," 1988).
60
Principal-Agent Research
Principal-agent researchers are concerned with a general theory of the principal-agent
re-
lationship,atheorythatcanbe
ployer-employee,lawyer-client,
andotheragencyrelationships
1978). Characteristic of formal theory, the prin-cipal-agent paradigm involves careful
specifi-
cation
logical
In comparison
cipal-agentand,
scholars.
theory
focused
widely
pal-agent
greater
tions.In contrast,
cused
theowner/CEO
ration.
cludesmanymoretestableimplications.
For organizational
provide
ofthe
Rather,
streams
identifiesvariouscontractalternatives,
cipal-agent
themostefficientundervarying
come
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andothervariables
Thefocusoftheprincipal-agent
ondetermining
versus
agent.
between
suredoutcome,andanagentwho
averse
behind
whoare
should
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capable
shouldberisk neutral.)The approach
plemodel
(e.g., Demski& Felth
simplecaseof complete
principal
Given thattheprinc
behavior,
havioris mostefficient.Anoutcome-based
tract wouldneedlessly
whois assumedto bemorerisk averse
principal.
Thesecondnotknow
Given the
mayormaynothave
agencyproblemarisesbecause
andthe
principal
haved appropriatel
twoaspects
Moral hazard
theagent.
maysimplynot put forth the agreed-upon
That is,
moral hazard occurs when a research scientist
works onapersonal
pany time,butthere
corporatemanagement
scientist
fersto
agent.The argument
claim to have
or sheis hired.Adverse
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theprincipal
skills orabilities
while theagent
verse selection occurs when a research scientist claims to have experience in a scientific
spe-cialty and the employer cannot judge whether this is the case.
In the case of unobservable behavior (due to moral hcazard or adverse selection), theprincipal has two options. One is to discover the agent's behavior by investing in
information systems
such as budgeting systems, reporting proce-dures, boards of directors, and additional
layers of management. Such investments reveal the agent's behavior to the principal, and
the situa-tion reverts to the complete information case. In formal terms,
Proposition
tivelyrelatedtobehavior-based
negatively
The other optionis to contracton theoutcomesof the agent's
contractmotivatesbehavior
theagent's
pal,butat
agent.The issue
are only partly a function of behaviors. Govern-ment policies, economic climate,
competitor ac-
tions, technologicalc
cause uncontrollabl
The resulting
not onlythethat must be borne by someone. When outcome uncertainty is low, the costs of shifting
risk to the agent are low and outcome-based contracts are attractive. However, as
uncertainty increases, it becomes increasingly expensive to shift risk de-spite the
motivational benefits of outcome-based contracts. In formal terms,
Proposition 4: Outcome uncertainty is positively related to behavior-based contracts and
nega-tively related to outcome-based contracts.
This simpleagency
in varying
& Feltham,
strom,1979; Shavell,ofprincipal-agent
tween(a) thecost of measuring
the cost of measuring
risk to theagent.
Anumberofextensions
arepossible.
risk-averse
Research
catesthat
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61
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attitudes.
lessriskaverse(e.g.,
comesmoreattractivetopassrisk totheagent
usinganoutcome-based
astheagentbecomes
creasingly
formal terms,
Proposition 5: The risk aversion of the
agent is positively related to behavior-
based contracts and negatively related to
outcome-based con-tracts.
Similarly, as the principal becomes more
risk averse, it is increasingly attractive to
pass risk to the agent. In formal terms,
Proposition6: The risk aversion
isnegatively
tracts
based
Anotherof goalconflictbetween
(e.g.,
highly
1979) or insituations
wayto selfless
isnogoal
principal
orherbehavior
decreases,
imperative
theissueUnder
behavior-based
tive.In formalterms,
Proposition 7: The goal conflict between
princi-pal and agent is negatively related
to behavior-based contracts and
positively related to out-come-based
contracts.
Another set of extensions relates to the
task per-formed by the agent. For
example, the progam-mability of the task
is likely to influence the ease
of measuring
Programmability
whichappropriatebehaviorbythe
bespecified
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a retail salescashier
thanthatofahigh-technology
Theargumentis that thebehavior
gaged
serve
grammed the task, the more attractive are
be-havior-based contracts because
information about the agent's behavior is
more readily de-termined. Very
programmed tasks readily re-veal agent
behavior, and the situation reverts to the
complete information case. Thus, retail
sales clerks are more likely to be paid via
behavior-based contracting (e.g., hourly
wages), where-as entrepreneurs are more
likely to be compen-satedwithoutcome-basedcontracts
ownership).In formalterms,
Proposition
tivelyrelatedtobehavior-basedcontracts
negatively
Another task characteristic is the
measurabil-ity of the outcome (Anderson,
1985; Eisenhardt, 1985). The simple model
assumes that outcomes are easily
measured. However, some tasks re-quire a
long time to complete, involve joint or team
effort, or produce soft outcomes. In these
circumstances, outcomes are either
difficult to measure or difficult to measure
within a practi-cal amount of time. When
outcomes are mea-sured with difficulty,
outcome-based contracts are less
attractive. In contrast, when outcomes are
readily measured, outcome-based contracts
are more attractive. In formal terms,
Proposition 9: Outcome measurability is
nega-tively related to behavior-based
contracts and positively related to
outcome-based contracts.
Finally, it seems reasonable that when
prin-cipals and agents engage in a long-
term rela-tionship, it is likely that the
principal will learn about the agent (e.g.,
Lambert, 1983) and so will be able to
assess behavior more readily. Con-versely,
in short-term agency relationships, the
information asymmetry between principal
and agent is likely to be greater, thus
making out-
62
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come-based contracts more attractive. In formal terms,
Proposition 10: The length of the agency rela-tionship is positively related to behavior-based
contracts and negatively related to outcome-based contracts.
Agency Theory and the
Organizational Literature
Despite Perrow's (1986) assertion that agency theory is very different from organization
theory, agency theory has several links to mainstream organization perspectives (see Table
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2). At its roots, agency theory is consistent with the clas-sic works of Barnard (1938) on the
nature of co-
operative
on theinducements
ployment
theheartinherent
ences engage
sential
Agency
elsoforganizations.
perspectives
atthe individ
organizational
1981).Also,
asymmetry
participants
enceis that in politicalmodels
resolved
coalitions-the
science.
through
pricemechanism
Agency
tionprocessing
ory(Chandler,
& Lorsch,
tiontheories.Theyassume
boundedlytributedasymmetrically
zation.Theyalsoareefficiency
theyuseefficientprocessing
criterion for choosing
forms(Galbraith,
thetwoistheirfocus:In contingency
searchers
turingofreporting
making responsibilities (e.g., Galbraith, 1973;
Lawrence
theorytheyareconcernedstructuring
fromthese
terns.Forexample,
wewould
organized
Table 2
Comparison of Agency Theory Assumptions andOrganizational Perspectives
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Assumption
Self-interest
Goalconflict
Boundedrationality
Informationasymmetry
Preeminenceof efficiency
Risk aversion
Informationasacommodity
63
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Usingagency
withwhether
ture are
tives.
control literature(e.g.,
Forexample,
chi's (1979) linking
tionships
susoutcometheory'slinkingtaskprogrammability
surability
hardt,
tionships
iorcontrol,and
outcomes)
Ouchi's
frameworktoinclude
assuming
agency
gruencebetweenpeopleand,therefore,duced
Motivationissuesdisappear.
ences
zationalcontrolliteraturearethe
tionsofprincipalandagent
outcomeuncertainty(Propositions
ties with
(Williamson,
chi(1986), thetheories
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interest
have similar
archies roughly correspond to behavior-based contracts, and markets correspond to
outcome-based contracts. However, the two theories arise from different traditions in
economics (Spence, 1975): In transaction cost theorizing we are concerned with
organizational boundaries, whereas in agency theorizing the contract be-tween
cooperating parties, regardless of bound-ary, is highlighted. However, the most impor-
tant difference is that each theory includes unique independent variables. In
transaction cost theory these are asset specificity and small
64
numbers bargaining. In agency theory there are the risk attitudes of the principal and
agent, outcome uncertainty, and information systems. Thus, the two theories share a
parentage in eco-nomics, but each has its own focus and several unique independent
variables.
Contributions of Agency Theory
Agencytheory
ofincentives
thinking(Perrow,
usthatmuch
likeitornot,
theoryalso
common problem structure across research top-ics. As Barney and Ouchi (1986) described
it, organization research has become increasingly
topic,ratherthantheory,centered.
ory remindsusthat commonproblem
doexistacross
sultsfrom one
gration)maybegermane
monproblem
Agency
butionsto organizational
treatment
formationisregarded
cost, andimportant
such asbudgeting,
tors, and
supervision,which
research.
caninvest
controlagent
Anillustrationofthisisexecutive
tion.Anumber
expressed
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based e
Stevenson,
1984). However,
isnot
should
including
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richer information systems control
managerial opportunism and, therefore,
lead to less perfor-
mance-contingent
Oneparticularlyrelevantinformationsystem
for monitoringexecutivebehaviorsistheboardof directors. From anagency
canbe
holder
boards provide richer information,
compensa-
tion
mance.
ecutives
onknowledge
likely.Executiveswouldthenberewarded
takingrisk/highpotential
beunsuccessful.
richer
likelyto engage
withstockholders'interests.Forexample,
anagencyviewpoint,behaviorssuch
greenmail
to benefitthemanager
ers,arelesslikelywhen
itors
therichnessofboard
suredinterms
quency
subcommittees,
long
managerial
ber
ownership
Asecond
risk implications.
have
prosperity,
outcome, and that future is only partly
controlled
byorganization
fects
gence
vation
tends
ramifications
implications
65
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viewed
intermsof inability
isthatoutcomeuncertainty
ences
ence
Verticalintegrationprovidesanillustration.
Forexample,
thattechnological
not affectthe"make or buy" decision
nentsin alargeautomobile
cipal
explain
framework.However,
withagencythinkingif themanagers
tomobile
sumption
relative
nent).Accordingpredictthat sucharisk-neutralprincipal
tively
whichwasWalkerandWeber'sresult.
reverse
thiscase,
limited
uncertainty:
large.In this case,
mayberisk-averse
agency
agers
tainty.Inparticular,
morelikelyto choose
transferringrisk tothesupplying
agency
ersare
havior-based
ecutives
based
Empirical Results
Researchers in several disciplines have
un-dertaken empirical studies of agency
theory. These studies, mirroring the two
streams of theo-retical agency research,
are in Table 3.
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to -.-
;5 0
to
U)
to
tj
0
ti -
>
0
u
93
0
00
tm64
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to
v
CV)
5
U)
(1)
> 0
(1) U)
(1)
0
66
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uia)
0
u
P
C
0
0
ti
tj
ti
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ts0
04
tj
ti
co
I.-
-U2.1
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U2
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a) k40 (
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67
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UTC All use subject to JSTOR Terms and Conditions
Results of the Positivist Stream
In the positivist stream, the common
approach is to identify a policy or
behavior in which stock-holder and
management interests diverge and then to
demonstrate that information systems or
outcome-based incentives solve the agency
problem. That is, these mechanisms
coalign managerial behaviors with owner
preferences. Consistent with the positivist
tradition, most of these studies concern
the separation of owner-ship from
management in large corporations, and
they use secondary source data that are
available for large firms.
One of the earliest studies of this type
was conducted by Amihud and Lev
(1981). These re-searchers explored why
firms engage in con-glomerate mergers.
In general, conglomerate mergers are not
in the interests of the stockhold-ers
because, typically, stockholders can diver-
sify directly through their stock portfolio.
In con-
trast,conglomeratemergersmay
to managers
to diversify
mergers are an arena in which owner and
man-ager interests diverge. Specifically,
these au-thors linked merger and
diversification behav-iors to whether the
firm was owner controlled (i.e., had a
major stockholder) or manager
controlled (i.e., had no major
stockholder). Consistent with
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agencytheoryarguments
1976), manager-controlled
nificantly
lated)acquisitions
Alongthesamelines,WalkingandLong
(1984) studiedmanagers'
bids.Theirsample
porations
between
takeover
but it may be in the interests of managers
be-cause they can lose their jobs during a
takeover. Consistent with agency theory
(Jensen & Meck-ling, 1976), the authors
found that managers who have substantial
equity positions within
68
theirfirms(outcome-based
likelyto resisttakeoverbids.
Theeffectsof marketdiscipline
lationships
study
(principals)
andgas
tax and
toassessnance
tensive
incentives
withagency
found that long-run reputation effects of the
mar-ket coaligned the short-run behaviors of
the gen-eral partner with the limited
partners' welfare.
Kosnik(1987)examined
mechanism
boardof directors.Kosnik studied
corporations
tween
agency
ticsto
(payinggreenmailis considered
holders'interests).Aspredicted
ory (Fama& Jensen,
that resisted
ofoutsidedirectorsandahigher
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outside
Ina
(1987) examined
firmsecurities
tween stockholders and management.
Specifi-cally, they studied the relationshipbetween stock and stock option holdings of
executives and whether acquisition and
financing deci-sions were made consistent
with the interests of stockholders. In general,
managers prefer lower
risk acquisitions
Argawal
sample
acquisitions
1982. Consistent
& Meckling,
(outcome-based
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UTC All use subject to JSTOR Terms and Conditions
sition and financing decisions that were
more consistent with stockholder interest.
That is, ex-ecutive stock holdingsappeared to coalign managerial
preferences with those of stockhold-ers.
Singh and Harianto (in press) studied
golden parachutes in a matched sample of
84 Fortune 500 firms. Their study
included variables from both agency and
managerialist perspectives.
Consistent with agency theory (Jensen &
Meck-ling, 1976; Fama & Jensen, 1983),the authors found that golden parachutes
are used to coalign executive interests
with those of stockholders in takeover
situations, and they are seen as an al-
ternative outcome-based contract to
executive stock ownership. Specifically,
the authors found that golden parachutes
were positively associ-ated with a higher
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probability of a takeover at-tempt and
negatively associated with executive stock
holdings.
Finally, Barney (1988) explored
whether em-ployee stock ownership
reduces a firm's cost of equity capital.
Consistent with agency theory (Jensen &
Meckling, 1976), Barney argued that
employee stock ownership (outcome-
based con-tract) would coalign the
interests of employees with stockholders.
Using efficient capital market
assumptions, he further argued that this
coalign-ment would be reflected in the
market through a
lowercostofequity.Although
directlytest
areconsistent
In summary,
of agency
topexecutives
interests
debtversus
divestitures,
problems
suchasgolden
in press)andexecutive
& Mandelker,
(b) through
(Kosnik, 1987) and efficient markets
(Barney, 1988; Wolfson, 1985). Overall,
these studies sup-
69
port the positivist propositions described
earlier. Similarly, laboratory studies by
Dejong and col-leagues (1985), which are not
reviewed here, are also supportive.
Results of the Principal-Agent Stream
The principal-agent stream is more
directly fo-cused on the contract between the
principal and the agent. Whereas the
positivist stream lays the foundation (that is,
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that agency problems exist and that various
contract alternatives are avail-
able),theprincipal-agentstream
mostefficientcontractalternativeinagiven
uation.Thecommon
istouseasubsettask programmability,
outcomeuncertainty
tract is behavior-
lyingassumption
will choose the most efficient contract,
although efficiency is not directly tested.
In one study, Anderson (1985) probed
vertical integration using a transaction cost
perspective
withagency
ined
resentative
sales
electronics
tory variable
culty
amountof nonselling
Consistent
able
sales
In otherstudies,
inedthechoicebased)andsalary(behavior-based)
tionofsalespeople
study
while
agency
dictions.
predictions
tionsystems
andoutcome
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UTC All use subject to JSTOR Terms and Conditions
by number of
competitors and
failure rates) sig-
nificantly predict
the salary versus
commission
choice.
aswell.
Conlon
tended
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ting.Theyusedamultiperioddesign
agency
withagency
foundthat informationsystems
whether
agent's
performance-contingent(outcome-based)
Theyalso
dictions.
Finally,
develop
pricing.
13large
work based
prescribe the
conditions
under which
various
sourcing
bothefficient
framework
(arguably
andthe
contract)
transferpricing
In summary,
agent
informationsystems
cles,1985; Eisenhardt,tainty
ability
time(Conlon
grammability
Moreover,
variety
secondary
and interviews.
Recommenda
tionsfor Agency
Theor
y
Resear
ch
As argued
above, agency
theory makes
con-tributions to
organization
theory, is testable,
and
70
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has empirical support.
Overall, it seems
reason-able to urge
the adoption of an
agency theory
perspective when
investigating the many
prob-lems that have a
principal-agent
structure. Five specific
recommendations are
outlined below for
using agency theory in
organizational re-
search.
Focus on
Information
Systems,
Outcome
Uncertainty,
and Risk
McGrath,thatresearch
Using
agency
should
uncertainty,
makethemostuniquecontributionto organiza-
tionalresearch,
piricalattention
searchersplace
orderto advance
newconcepts
as
cal
ances,
Studying
ticularlyopportune
in measuring
worksofKahneman
CrimmonandWehrung(1986), and
Shapira
canmeasure
realistically.
measures
indirectmeasures
teristics
characteristics
MarchandShapira,
Key on Theory-
Relevant Contexts
Organizational
theory usually is
explored in settings
in which the theory
appears to have
greatest relevance.
For example,
institutional and
resource dependence
theories were devel-
oped primarily in
large, public
bureaucracies in
which efficiency may
not have been a
pressing
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UTC All use subject to JSTOR Terms and Conditions
concern.
thesame
theory-relevant
Agency
whichcontracting
include
tial goal
suchthat agent
ers
als,
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uncertainty
theory
and
tries); and
jobsin which
By emphasizing
useagency
leverage
tested.Topicssuchasinnovationand
suchastechnology-based
attractive
between
jobs
cult.
Expand to Richer Contexts
Perrow (1986)andothers havecriticized agency
theoryfor beingfew testable
implications.
Although these
criti-
cisms
search
Thus,
richerandmorecomplexrange
Twoareas
istoapply
tional
asymmetry
tions.Examples
management
andother
blame
theory might
contribute an
overall framework
in which to place
these various forms
of self-interest,
leading to a better
understanding of
when such
behaviors will be
likely and when
they will be
effective.
71
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Thesecondareais
pureforms of behavior
described in this
article to a broader
range of con-tract
altematives. Most
research (e.g.,
Anderson, 1985;
Eisenhardt, 1985,
1988) treats contracts
as a dichotomy:
behavior versus
outcome. However,
contracts can vary on
a continuum between
be-havior and outcome
contracts. Also,
current re-search
focuses on a single
reward, neglecting
many situations in
which there are
multiple re-wards,
differing by time
frame and contract ba-
sis.For example,upperlevel
are
such
Both multipleandmixedrewards(behaviorand
outcome) present
empirical
difficulties, but
they
alsomirror reallife.Therichness
ityofagency
searchers
of possible
Use Multiple Theories
Arecent
quently
Theyargued
single
viewof humannature,
theauthors
nizational
yieldsamorerealisticview
Consistent
therecommendation
orywithcomplementary
orypresents
althoughit is valid,
complexity
spectivesplexity.
This point is demonstrated
pirical
the Singh and
Harianto (in press)
and Kosnik (1987)
studies support
agency theory
hypothe-ses, but they
also use the
complementary per-
spectives of
hegemony and
managerialism.
These perspectives
emphasize the power
and po-litical aspects
of golden parachutes
and green-
This content downloaded from 114.79.47.36 on Mon, 07 Sep 2015 13:38:52
UTC All use subject to JSTOR Terms and Conditions
mail, respectively. Similarly, the studies by
Eisenhardt (1988) and Conlon and Parks
(1988) combine institutional and agency
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theories. The institutional emphasis on
tradition complements the efficiency
emphasis of agency theory, and the result is a
better understanding of compen-sation.
Other examples include Anderson (1985),
who coupled agency and transaction cost,
and Eccles (1985), who combined agency with
equity theory.
Look Beyond Economics
The
tionalresearchers
nomics
arecarefuldevelopment
logicalever,muchofthis
menthasalreadybeenaccomplished
theory.For organizational
off now
zational researchers have comparative
advan-tage (Hirsch et al., 1987). To rely too
heavily on
economics
asefficient
style is to risk doing second-rate economics
with-out contributing first-rate
organizational re-search. Therefore,
although it is appropriate to monitor
developments in economics, it is more useful
to treat economics as an adjunct to more
mainstream empirical work by
organizational scholars.
Conclusion
This paper
onagency
theoryisrevolutionaryand
tion (Jensen,1983) andtheotherarguing
theory
lacks
(Perrow,1986). Amorevalidperspective
themiddle.
realistic,
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onproblems
this paper
rounding
tional
study
suesfacing
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