Agency Theory Perspective Research Articles

Exploring the consequences of knowledge hiding: an agency theory perspective

PurposeThe purpose of the study is to explore empirically the consequences of knowledge hiding at the individual level and from the knowledge hiding committers' perspective. Hence, in line with agency theory and prior literature on knowledge hiding, the study investigates the associations between different facets of knowledge hiding and individual-level job performance, as well as the mediating role of employee well-being in the associations.Design/methodology/approachStructural equation modeling was used to analyze multisource survey data from a sample of 214 employees and 34 immediate supervisors, in a professional services company in Finland.FindingsEvasive hiding was found to be negatively associated with in-role job performance and positively associated with innovative job performance. Playing dumb was found to be positively associated with in-role job performance. Finally, even though the association between rationalized hiding and innovative job performance was found to be positive, it was found to be of a smaller magnitude when employee well-being was taken into account.Practical implicationsForceful unhealthy competition and exploitative and workaholic cultures are discussed to reduce knowledge hiding behavior among employees and their negative consequences.Originality/valueThe study highlights the paradox of managing organizational knowledge. In line with agency theory, we advocate that while knowledge sharing is one of the major assets of organizational welfare from the organizational perspective, it may resonate with the employee's perspective. Consequently, unless employees' self-interest and organizational interests are aligned, the paradox of managing organizational knowledge arises, and the classic agency problem occurs.

Analiza mechanizmów powierzenia usług w ogólnym interesie gospodarczym z perspektywy teorii agencji

Przedmiot badań: Usługi w ogólnym interesie gospodarczym są częścią porządku prawnego Unii Europejskiej dotyczącego swobodnej konkurencji i pomocy publicznej. Dotyczą one powie­rzenia przez podmiot publiczny świadczenia określonych usług publicznych za określone wy­nagrodzenie, zwane rekompensatą. W artykule przeanalizowano mechanizm powierzenia UOIG z perspektywy teorii agencji.
 Cel badawczy: Celem artykułu jest zbadanie, czy istnieje analogia między mechanizmami po­wierzenia usług publicznych a mechanizmami zidentyfikowanymi w celu złagodzenia skutków problemu agencji oraz sformułowanie w oparciu o teorię ekonomiczną wniosków służących udo­skonaleniu regulacji prawnych.
 Metoda badawcza: Dokonano analizy wybranej literatury polskojęzycznej i anglojęzycznej w przedmiocie teorii agencji i UOIG. Dokonano przeglądu i interpretacji regulacji prawnych w zakresie pomocy publicznej ze szczególnym uwzględnieniem usług świadczonych w ogólnym interesie gospodarczym. Artykuł ma charakter koncepcyjny.
 Wyniki: W ramach przeprowadzonej analizy wykazano, że istnieje wyraźna analogia między mechanizmami powierzania usług publicznych a mechanizmami przyjętymi w celu złagodzenia problemu agencji. Oznacza to, że osiągnięcia nauk ekonomicznych w dziedzinie teorii agencji powinny być brane pod uwagę przy opracowywaniu regulacji prawnych dotyczących usług pu­blicznych i przygotowywaniu umów powierzenia UOIG.

The Impact of External Business Environment on Corporate Social Responsibility: Theoretical Implications and Empirical Evidence

The literature evidently demonstrates the CEO-centric effect upon firms’ Corporate Social Responsibility (CSR) engagements. Given the CEO’s strong discretionary power over CSR decisions and self-serving motive divergent from shareholder value maximization, it would be interesting to investigate the strategic decisions made by the CEO on CSR policy facing varied dimensions of market conditions. From an agency theory perspective, the paper develops a theoretical framework to model and clarify the relationships between firm’s CSR provisions and the three dimensions of external market conditions: market complexity, munificence, and dynamism. Furthermore, I empirically measure the market dimensions and test the propositions implied by the theoretical work. Consistent with the model implications, I found CEOs tend to invest more in CSR in a competitive market, less in CSR when the market is munificent and more in CSR when the market is dynamic and unpredictable. The results are consistent with the extant literature and shed light on the value relevancy of CSR activities.

Understanding the motivations of technology managers in radical innovation decisions in the mature R&D firm context: An Agency theory perspective

Abstract Economic and management theory predicts that mature R&D organizations will underinvest into radical technological innovation. Recent research, however, highlights how many established R&D companies often do aggressively invest into radical innovation, but never truly reap the full benefits of their early investments. In order to investigate this paradox, we ground our paper in Agency-theory and focus on the role corporate governance plays in enabling R&D project managers and their teams to commercialize radical technologies. We use a longitudinal multi-case comparison design to examine the corporate governance systems of twelve industry-leading companies, all with a strategic mandate to commercialize radically innovative technologies on a continuing basis. Agency theory’s explanation for this puzzle is that incumbent firms struggle with radical innovation because opportunistic managers overinvest free cash flows into radical ideas, with limited commercial value. Yet, our unique access to the complete process of radical innovation shows that the challenge lies less in the middle manager’s desire to enrich themselves at the expense of the shareholders. On the contrary, it arises more from a failure to suitably select, incent and monitor the commercialization activities associated with technological innovation, the farther removed it is from the initial recognition of the opportunity.

Family Business Performance: A Perspective of Family Influence

Purpose – The purpose of this study is to analyze the relationship between family influence, measured through power, experience and culture (F-PEC) and family business (FB) performance. Performance is measured from a financial and non-financial perspective. Design/methodology/approach – Empirical study using the quantitative method and data collected through a questionnaire, answered by 169 Portuguese family firms. The survey design was based on prior research of FB performance and the F-PEC questionnaire. The exploratory factor analysis and multiple linear regression models are used. Findings – The results indicate a negative relationship between experience and financial performance, a positive association between a culture of family commitment and performance (financial and non-economic goals), and a positive relationship between a culture of family values and non-economic goals. The r esults show the importance of agreement between the firm and the family goals. Family influence on FB performance cannot be seen only from a positive (stewardship theory) or a negative (agency theory) perspective . Originality/value – C ommitment increase s financial performance and the achievement of non-economic goals (perpetuity and family assets) . It is important to study how a culture of commitment leads to superior performance.

FACTORS AFFECTING TAX AVOIDANCE IN INDONESIA AND SINGAPORE PRACTICES: A VIEW FROM AGENCY THEORY

Extant studies highlight that an act of illegally tax planning by the tax manager in companies is due to the information asymmetry allowing managers to hide actual information in seeking substantial compensation from the profit gained by companies for his/her own benefit. The main objective of the research is to investigate the tax avoidance model from two neighbor countries: Indonesia and Singapore, that have a different weight of Effective Tax Rate (ETR) reflecting an agency theory perspective in the tax avoidance practice. The multiple regression test in analyzing the influence of capital intensity, leverage, institutional ownership, compensation for fiscal losses, and firm size on tax avoidance was applied to 90 and 82 public listed manufacturing companies in Indonesia and Singapore, respectively. Analysis of the data used is quantitative using secondary data. More specifically, the result of the study indicates that capital intensity, leverage, and tax incentive are established as three important factors affecting tax avoidance in Indonesia. As for Singapore practice, except for firm size, none of the mentioned variables found as major determinants of tax avoidance in Singapore. The implications of this study provide information for shareholders and the government to further look performance and value of the company(s) in relation to the tax planning related-activities.

The Principal, the Agent, and the Culture: Potential Impacts of Culture on Financing Contracts

ABSTRACTEntrepreneurs are vital for the success of any country, especially that of emerging and newly emerging economies. In this article, we look at how financial information sharing by entrepreneurs impacts access to capital. We model the relationship between entrepreneurs and lenders as that of a principal-agent and show how this agency theory perspective combined with culture of the country can present a richer understanding of the relationship between information sharing and access to capital. Implications of our findings are discussed in detail.

Board characteristics and integrated reporting quality: an agency theory perspective

AbstractIntegrated reporting is the latest novelty in the corporate reporting field. It is a tool capable of better representing the capacity of companies to create value over time. In recent years, attention to this new reporting tool has grown in both professional and academic fields. However, despite past research that has analysed many aspects of integrated reporting, the integrated reporting quality and its determinants are still little explored. This study aims to fill this gap by analysing the effect of board characteristics on integrated reporting quality according to an agency theory approach. The findings, based on a sample of 134 international firms, show a positive relationship between the size, independence, diversity, and activity of a board with integrated reporting quality. This study contributes to enriching literature in this area in various ways. First, it broadens the scope of application of agency theory; second, it identifies further internal determinants of integrated reporting quality. This is the first study that analyses the impact of the characteristics of a board as a determining factor of integrated reporting quality.

Boardroom nationality and gender diversity: Implications for corporate sustainability performance

Abstract Drawing on the agency theory perspective and following the recent calls to contemplate multiple dimensions of diversity simultaneously, this study intends to empirically investigate the effects of board diversity as a multifaceted phenomenon, specifically nationality and gender diversity on the extent of corporate sustainability performance in a developing country, namely, Palestine over the period 2013 to 2018. Empirical evidence on the connection between board diversity and corporate sustainability performance from countries influenced by cultural and traditional terms is remarkably limited. This study handled this research gap and went beyond the narrow and pre-conceived perspectives. Thereby, contributes theoretically and practically to the corporate sustainability literature by providing in-depth insights about board diversity and corporate sustainability-related activities as paradigmatic evidence from a developing country with an exceptional cultural environment of business. The ambiguous findings are often deemed a consequence of endogeneity problem. Therefore, to provide a thorough and profound analysis, two-step system GMM are performed. Additionally, our findings are robust since four proxies for nationality and gender diversity are employed. The results unveiled that corporate sustainability-related actions are positively and insignificantly affected by nationality and gender diversity. This weak nexus between the two mechanisms is widely attributed to so-called geographically proximate cultures and gender discrimination in the workplace. These empirical results provide a useful and multidimensional insights for regulatory parties, companies, and different groups of stakeholders to promote the link between board diversity and corporate sustainability beyond the current boundaries.

Marketisation, information transparency and the cost of equity for family firms

From the agency theory perspective, this study investigated the effect of information transparency on the relation between family control and the cost of equity for family firms. Additionally, it considered whether marketisation could moderate the effect of information transparency on the relation between family control and the cost of equity for family firms, based on 573 family firms in China. The results show that the cost of equity is positively related to family control. As information transparency increases, the effect of family control on the cost of equity weakens. Moreover, the negative effect of information transparency on the cost of equity weakens when the control-ownership wedge is high. The three-way interaction among marketisation, family control and information transparency has a negative effect on the cost of equity. This means that the negative effect of information transparency on the relation between family control and the cost of equity weakens as marketisation increases.

The influence of CEO risk tolerance on initial pay packages

AbstractResearch SummaryBased on agency theory, CEOs with greater risk aversion should be given greater incentive‐based compensation to motivate risk taking. We explore whether new CEOs receive initial pay packages that follow this recommendation, or instead receive pay packages that mirror their risk preferences. Rather than finding support for the agency theory perspective, we find that new CEOs are compensated in the way that reinforces their existing risk preferences. Specifically, using a CEO's political orientation to capture relative risk tolerance, we find that conservative‐leaning CEOs receive relatively less performance‐based pay than their liberal‐leaning counterparts. Supplemental analyses suggest this occurs through both a matching and tailoring process, whereby boards offer similar pay packages from CEO‐to‐CEO, but modify them based on differences in risk tolerances.Managerial SummaryWhen designing a new CEO's pay contract, what proportion of the total compensation should be guaranteed versus performance based? To encourage risk taking, most researchers suggest that CEOs with greater risk aversion should have a pay mix that is more heavily weighted toward performance‐based pay. We find that the opposite occurs; new CEOs who are more risk averse tend to receive relatively less performance‐based pay than new CEOs who are more risk tolerant. This appears to occur because CEOs are attracted to firms that offered the prior CEO a pay package that appeals to the new CEO's risk tolerance. Our results also suggest that risk‐seeking CEOs' strategic actions are more strongly influenced by performance‐based pay, while more risk‐averse CEOs seem relatively unaffected by pay mix.

Corporate Governance and Corporate Agility

Most of the extensive literature on corporate governance during the past fifty years has approached the topic from the perspective of agency theory and it has focused on dimensions of governance that are relatively easy to measure (e.g., ownership structure, size and structure of boards, executive compensation). Although the literature has greatly enhanced our knowledge of corporate governance, this focus has likely blinded us to other dimensions of governance that are hard to measure, unrelated to agency costs, but important determinants of firm performance and survival. This paper suggests one such dimension, corporate agility, which refers to the speed with which firms adapt to changes in their environments and discusses the potential role that governance plays in promoting or impeding corporate agility.

Relationship between Government and Public Sector Universities in the Perspective of Agency Theory: A Brief Review

The aim of this study is to analyse the relationship between government and public sector universities in the perspective of agency theory and propose a theoretical framework that will highlight th...

Does Ownership Structure Pay Attention to The Corporate Cash Policy? Evidence in Indonesia Firms

Cash and its use will connect to many things, such as the performance of corporate governance. This empirical research examines the interaction effect of insider ownership, institutional ownership, and independent board toward the influence of cash policy on the firm value. This research using agency theory framework, corporate governance using Indonesia listed firms’ samples over 2001-2017 (197 firms, 3349 observation). Fixed effect dynamic panel regression and regression-moderated analysis used in this research. We show that these results suggest that the insider ownership, institutional ownership, and independent board strengthen the influence of the corporate cash policy on firm’s value. It develops the previous research findings in Indonesia, especially in the implication of cash management from the perspective of agency theory and corporate governance.JEL Classification: G32, L21

Earning Management: From Agency and Signalling Theory Perspective in Ethiopia

Aims: To examine earning management from agency and signalling theory perspectives. Agency theory was used as a clogging factor for earning management practice whereas, signalling theory relates to managements intention to reflect insider information for the market.
 Study Design: Considering the nature of the problem, explanatory research design with mixed research approach was employed.
 Place and Duration of Study: Sample: large manufacturing companies from the period of 2009 to 2017, Addis Ababa, Ethiopia.
 Methodology: The study used audited financial reports of 14 large manufacturing companies in Addis Ababa operating from the period of 2009 to 2017 for which random effect regression model was used.
 Results: From agency theory proxies, leverage and audit quality had significant positive and negative impact respectively on earning management. The finding for signalling theory proxies showed that, size of the firm had a positive significant relationship with earning management.
 Conclusion: The study concluded that signalling and agency theories partially explained earning management in Ethiopian Large Manufacturing Share companies.
 Originality/value: There were numerous studies explaining earning management from signalling and Agency theory self-reliantly, but this study has modeled earning maneuver motives of management (signalling motive) and controlling mechanisms (Agency theory proxies) set by stakeholders, in one model. Further, the study was conducted in developing country perspective with lower legal requirement on information asymmetry, higher reporting laxity and non-standard/mixed reporting experience.

Informational and Agency Issues Related to Operating Cash Flows Models: An Empirical Comparison on S&P500 Companies Financial Reports

Operating cash flows and their models are crucial for companies, from day-to-day operations to investment decisions. We study the possible issues with the quality of the information provided by current cash flow models in the context of economic decision-making, from the agency theory perspectives of insiders and outsiders. We analyze these questions by testing the preeminent indirect model of operating cash flows, against an analytical model directly based on accounting. We compare both and show how the analytical model succeeds to generalize the indirect model, through a more complete description of economic activities. This advantage enables potential significant gains in terms of knowledge about CFs. Therefore, we compare both models’ ability to describe S&P500 companies’ receivables time series, as a simple fundamental element to operating cash flows. We observe indeed significantly higher correlation and accuracy with the analytical model, generalizing the indirect model and we show how the way to convey economic information may have an impact on real economic decisions. We contribute also to identify, with both models, an information asymmetry between outsiders and insiders related to the frequency of financial publication. Higher frequency (quarters) reveals a more accurate picture reducing the gap with insiders, of interest to regulators.

A Study of Impact Mechanism of Political Connection on Enterprise PerformanceBased On the Perspective of Agency Theory

The crucial role of every firm to enhance the profit and make a good reputation in the corporate world. All the previous evidence elucidates prove that political connections have the main role to eradicate the market competition and speculations. These are considered are known as a dominant player in the area of business. Most of the researchers argue that these are degree of the intense growth of corporations. Arguably, it is the unique opportunity to raise capital of the corporations. All these evidence prove that political connections are considered unanimously support for increasing the performance. Prior researchers prove that it is most conspicuously way to forgo enhance the progress. They can gain the lucrative contracts to enhance the firms. Sometime, it is a glimmer of hope that in future, these will be more beneficial rather than others peer

Tax Avoidance, Firm Value, and Comparability

The purpose of this study is to examine whether financial reporting comparability affects the relation between tax avoidance and firm value. There are two conflicting views on the relation between tax avoidance and firm value. One is the traditional perspective that views tax avoidance as value-enhancing transfer of corporate resources from the government to the shareholders. The other is an agency theory perspective that views tax avoidance as an effective monitoring vehicle for managerial private interests, and thus the effect of tax avoidance on firm value varies depending on the size of non-tax costs of tax avoidance. Using 3,123 firm-year observations listed on Korea Exchange over 2006~2015, we find that the negative relationship between tax avoidance and firm value weakens as the level of comparability increases. Investors place a price discount on tax avoidance on average because the increase in non-tax costs due to tax avoidance is more severe than tax savings itself. However, as comparability increases, the decline in corporate value is partially alleviated due to a decrease in non-tax costs of tax avoidance. In short, financial reporting comparability has a positive impact on the relationship between tax avoidance and firm value. These results can be seen in both accounting-based and market-based comparability. This study contributes to the literature on the relationship between tax avoidance and firm value by focusing on the effect of comparability. As the comparability among firms enhances, it will increase market participants'' understanding of the economic consequences of tax avoidance. Further, this study provides evidence of the role of Peterson, Schmardebeck, and Wilks''s (2015) text-based accounting consistency beyond De Franco, Kothari, and Verdi''s (2011) market-based comparability in explaining the relationship between tax avoidance and firm value. measure, it has limitation in that it is highly influenced by stock returns.1) In contrast,

Trade credit use and bank loan access: an agency theory perspective

AbstractIn this study we find that firms’ use of trade credit significantly facilitates their access to bank loans in the future, suggesting a complementary relationship. Such a relationship is more profound for firms with higher perceived agency costs, i.e., firms with opaque corporate information, firms located in regions with less developed external institutions, and firms at an early stage of existence. Firms switch from trade credit to bank loans as the main source of debt financing as they age. However, the process is slower for firms with a greater level of corporate information opacity and firms located in regions with weak external institutions.

The influence of CEOs’ equity-based compensation on restaurant firms’ CSR initiatives

PurposeBased on the agency theory and risk management perspective, this study aims to examine the relationship between CEOs’ pay schemes and corporate social responsibility (CSR) activities in the restaurant industry. Specifically, the authors propose that CEOs with a higher proportion of equity-based compensation (EBC), which induces a greater propensity for risk-taking, are prone to indulge less in CSR. In addition, the authors investigate how institutional ownership moderates the proposed main relationship.Design/methodology/approachThis study performs two-way fixed-effects models and clustered standard errors to test the proposed hypotheses.FindingsThe results of the panel analysis show a significant negative effect of CEOs’ EBC on CSR. Also, the authors found a significant positive moderating effect of institutional ownership between CEOs’ EBC and CSR.Originality/valueGiven the lack of empirical studies that incorporate both agency theory and the risk management perspective, and given the importance of understanding the determinants of restaurant firms’ CSR activities, this study expands upon the existing literature by showing the relationship between CEOs’ compensation schemes and restaurant firms’ CSR activities.