Agency Relationship Research Articles

Unequal Remuneration in Agency Relationships

Unequal Remuneration in Agency Relationships

Process Views of Peer Mechanism in Joint Group Lending through the Theoretical Lens of Agency Theory: A Systematic Review of Literature

Formal institutions are unwilling to lend to the micro poor due to information asymmetry and lack of physical collateral, (Rai & Sjöström, 2010), (Angelucci, Karlan et al., 2015). However, group lending helps to address this problem by leveraging social capital, (Harriss & de Renzio, 1997). The goal of this study is to see how Peer Monitoring, Selection and Enforcement might help formal financial institutions to overcome Moral Hazard and Adverse Selection issues that come with working with disadvantaged borrowers in an agency relationship. The systematic literature review method was used to conduct the analysis. This study examines the growth of literature in the field of joint liability via the theoretical lens of agency theory, as well as a process view of literature in the field of Peer monitoring, selection and enforcement. According to the study, adverse selection in a Joint Liability Group is mitigated by Peer Selection which is motivated by social ties and borrower risk type and moral hazard is mitigated by Peer monitoring and enforcement. In a group, Peer mechanism is a major factor that mitigates agency problems and default in repayment of loans, (Noglo & Androuais, 2015). There is scope for further research in the domain of impact of risk diversification and random matching on the sustainability of Joint Liability Group.

The effect of decision time horizon on short termism: An experimental approach

Short-termism (i.e., the sub-optimal favouring of short-term performance over long-term performance) is generally explained as an outcome of the agency relationship whereby self-interested managers and/or stock market pressures distort the balance between short and long-term performance. We investigate if short termism (Crilly, 2017; Reilly, Souder, & Ranucci, 2016) is due to cognitive bias (temporal distortion) rather than agency costs. We test these hypotheses with an experimental approach by applying a 3x2 factorial design to manipulate temporal distortion on 60 non-conflicted decision-makers. Results suggest that individuals make inconsistent investment decisions based on differing payout time horizons. Participants faced with simple comparisons between investment opportunities were consistent across different time periods and followed a model of rational decision-making. In contrast, more complex decisions led to intertemporal inconsistency. We provide evidence that: 1) individuals on the whole struggle to deal with incorporating time into business decisions in a consistent way causing us to question the link between short-termism and agency theory; 2) principals likely view investment decisions inconsistently across time and so are a cause of sub-optimal investment decision-making and 3) we need to look beyond studies of moral hazard associated with agency theory and/or myopic market pricing when investigating short-termism.

Analyzing the Influence of Selected Talent Management Practices on Employee Discretionary Work Behaviours in Organizations

Talent management is significant in every organization if it is to achieve sustainable competitive advantage. Despite this knowledge critical talents remain scarce in many organizations which impair their growth and competitiveness. In many organizations, managers still maintain agency relationships with employees based on the assumption that employment contracts and rewards are sufficient to induce employees to contribute their best efforts towards organizational success. In many instances they ignore the value of providing environments where talents can thrive and be developed. This has made organizations unable to achieve their full potential. Available literature suggests that a range of managerial practices can be used to increase the likelihood of employees in applying their skills beyond the contractual prescriptions. It is on this basis that the paper endeavors to find out the influence of talent management practices and employee discretionary behaviour in organizations, main discretionary behaviours influenced by such practices and the relationship between managerial practices and employee discretionary behaviours. These objectives are clarified by literature from secondary sources that have demonstrated great consensus on the need for Managers to develop innovative talent management practices. These will lead to the emergence of new cultures based on teamwork, collaboration and innovation. Managers can also develop Innovative recruitment and selection processes that can lead to quick identification of highly talented employees and fit them in high performance groups to facilitate risk taking and innovation. This can be complemented by developing a positive psychological contract that can be influenced through rewards and career growth. These activities should be complemented with effective employee retention practices coupled with ethical and socially responsible leadership, to influence employee discretionary behaviours.

New domestic landscapes: a collaborative autoethnography in times of Coronavirus in Italy

In this article we present the results of research on transformations of everyday domestic life during the first Italian coronavirus lockdown. Covid-19 has shaken many of our convictions; it has “suspended time,” forcing us to live in a condition of uncertainty. People have had to re-think their priorities and the ways they live in and use domestic space, managing a relationship of power and agency between themselves and the house. The house, as a tyrannical agent, forced people to adapt to it, and to act as a consequence of changes dictated by Covid-19. This redefinition process has brought to light themes of great anthropological interest: new rituals, new definitions of cohabitation spaces, new needs and new fears. As it was impossible to conduct classical fieldwork, we chose to use the method of collaborative autoethnography, involving a group of 30 students in our research. We were thus able to observe changing everyday habits and the reorganization of spaces for purposes of work or sociality, as well as changes in relations with the outside world, mediated by social networks.

Is the cost of equity a mere function of leverage? The case of bond IPOs

AbstractIn this paper, we investigate how undertaking a bond IPO influences a firm's cost of equity. Using a sample of nearly 600 firms that have gone through a bond IPO over the 1980–2014 period, we show that the change in the cost of equity that results is not just a function of leverage influencing the risk of residual owners. The information and monitoring environment, and agency relationships of a firm change significantly with its first public debt, and these changes can have a significant impact on the firm's cost of equity. We find that firms that have relatively high information asymmetry before they undertake the bond IPO experience less of a rise in their cost of equity than firms with relatively low information asymmetry consistent with these firms benefitting from improvements in their information environment as a result of the IPO. We also show that firms with high pre‐bond IPO free cash flow see less of an increase in their cost of equity than firms with low pre‐bond IPO free cash flow consistent with the disciplining mechanism of additional debt and the benefit from additional monitoring. In addition, we find that firms with poor corporate governance experience less of an increase in their cost of equity after the bond IPO than firms with better corporate governance. The evidence suggests that the change in the riskiness of equity after a firm goes through a bond IPO is much more complex than what is predicted by the leverage increase.

An experimental study of gender differences in agency relationships

We look at gender differences in agency relationships between an employer and a worker. The employer can resort to two different ways of motivating the worker to exert effort. One of these depends on establishing a relational contract, which is based on mutual trust and reciprocity between the employer and the worker. A second type of contract relies more on extrinsic motivations in the form of fines for the worker if the worker is found to be shirking. Our ex ante hypothesis was that women would opt for the relational contract more than men. This conjecture is not borne out by the evidence. By and large, we do not find many significant differences between the genders, other than the fact that women tend to offer more generous contract terms, a fact that is in keeping with prior finding on gender differences in generosity.

Cost Avoidance: Not Everything that Counts is Counted

It is widely recognized that one of the purchasing function’s primary objectives is to generate cost saving through cost reduction and cost avoidance as it works with the supply base to provide high quality materials and services on a timely basis. This research develops mid‐range theory by incorporating empirical evidence and the tenets of agency theory to the specific domain of a purchasing agent working within an organization. This domain differs from other agency relationships because there are multiple principals with misaligned goals within the organization that influence how purchasing cost saving are counted and thus influence the impact of those savings on purchasing performance. Agency theory helps articulate propositions in this context by providing insight into how purchasing agents perform their organizational duties related to cost saving and avoiding cost increases. The focus is specifically on examining how the challenging area of cost avoidance savings are tracked, measured, and recognized. Case studies from eight organizations reveal that there is significant prospect for suboptimal performance due to the design of reward and measurement systems and the reluctance of purchasing to challenge these systems. However, this can be addressed through an investment in robust systems supported by top management and finance.

Consequences for Non-Payment of PAYE and VAT Compared

This article shows that, whereas a bilateral legal relationship exists between the South African Revenue Service (SARS) and a vendor in relation to value-added tax (VAT), a tri-partite legal relationship exists among the SARS, employees and employers in relation to Pay As You Earn (PAYE). This article shows further that employers are, as withholding agents of PAYE, in the same legal position as vendors as regards VAT, namely, they are not in a trust or agency relationship with the SARS. Rather, this article argues that PAYE is in the nature of trust funds held by employers on behalf of employees from whose remuneration it is deducted. Since the employees retain ownership of the PAYE deducted, this article argues that employees have locus standi to lay a charge of theft against employers who misappropriate PAYE. Such a charge of theft is not grounded in tax administration. This article shows further that, as the law presently stands, a charge of theft falls outside the ambit of the remedies available to the SARS against employers and vendors who default in remitting PAYE or VAT. The Tax Administration Act, 2011 read with the Income Tax Act, 1962 and Value-Added Tax Act, 1991 codified only a limited range of criminal sanctions and administrative penalties that may be imposed against a defaulting employer or vendor. If theft is to be included, then a legislative amendment is required.

Teacher and Student Reciprocal Agency in Odds-Beating Schools

Background/Context In the field of education, the lens of agency has provided a valuable conceptual alternative to deterministic portrayals of schools as oppressive institutions where teachers and students have little power over the conditions in which they teach and learn. A number of studies have investigated teacher and student agency, but few have explored the relationships between the two, particularly in regard to how teacher and student agency relate in high-need and high-diversity contexts with exemplary student graduation outcomes. Purpose/Focus of the Study In an effort to address the paucity of research investigating the relationships of teacher and student agency, this analysis draws on seven qualitative case studies of secondary schools achieving a trend of above-predicted (i.e., odds-beating) graduation outcomes. We pursued the overarching research question: What are the relationships between teacher and student agency in odds-beating schools? Setting The study took place in a purposeful sample of odds-beating secondary schools identified through multiple regression analyses. The sample included schools in rural, suburban, and more urban communities and were distributed across various geographic regions in the state of New York. All schools shared a pattern of above-predicted graduation outcomes, taking into account student demographic factors (percentage of students economically disadvantaged, African American/Black, Hispanic/Latinx, and English language learners). All schools met the criteria of being within the normal range for wealth ratio as well. Research Design This qualitative multiple case study focused on data generated from interviews and focus groups with 302 participants, including teachers, student support specialists, and school and district leaders, as well as field notes gathered during guided school tours, and documents. These data were analyzed using qualitative comparative analysis methods in multiple phases of deductive and inductive coding. Conclusions Study findings indicate that when teachers are offered opportunities to act as agents, they tend to offer opportunities to their students similarly. This research also suggests that affordances for teachers to assert agency can mitigate the constraining effects of state accountability system compliance-oriented practices. We conclude that teacher and student reciprocal agency merits further study and offers theoretical insights of particular import in high-needs and high-diversity school contexts.

Characterization and analysis of the basic elements of health payment mechanisms and their most frequent types

Healthcare systems are developed in imperfect scenarios, in which there are constant failures (uncertainty, information asymmetry, agency relationship problem, and supply-induced demand). These failures, based on the imperfection of the sector, determine the relationships and incentives between the actors. It is within this context that payment mechanisms regulate aspects of the system behavior and incentives, acting as instruments for the purchasing of health care from providers, mediated by health insurance on behalf of users. To characterize the basic elements of most frequent payment mechanisms to help providers in their relationship with payers. A review of the evidence was conducted in PubMed, Google, Google Scholar, and strategic snowball selection. Payment mechanisms consist of three classical microeconomics variables, fixed or variable: price, quantity, and expense. Time dimensions are used to analyze their attributes and effects. Different mechanisms emerge from the combination of these variables. Among the most used are: Fee-For-Service, Global Budget, Bundled Payments, Diagnosis-Related Groups, Per-capita, Performance Pay, and Risk-Sharing Agreements. A fourth has also gained importance: Financial Risk. Payment mechanisms are essential to link health efforts with clinical practice. They make it possible to regulate relationships between insurers, providers, and users, which, depending on the architecture of the mechanism, can become beneficial or hinder the fulfillment of the objectives of the health system.

Remuneração Executiva e Desempenho

Os estudos sobre remuneração executiva têm por sustentação teórica a Teoria da Agência, em que há a predição de que o principal delega ao agente poderes para conduzir seu patrimônio, sua companhia. No entanto, o principal não tem pleno controle das ações tomadas pelo agente. Uma das maneiras de se alinhar interesses de ambos é através da remuneração. As pesquisas desenvolvidas até então analisaram a relação entre remuneração e resultado, ou remuneração e performance. Os resultados apresentados são controversos. O resultado econômico apresenta-se vulnerável aos accruals discricionários, de modo que o agente pode manipulá-lo para a obtenção de resultados que o proporcione uma melhor remuneração. De outro lado, o resultado financeiro apresenta-se menos suscetível às ações dos executivos no que tange ao uso da discricionariedade, além de ser objeto de validação por parte dos auditores. Neste sentido, o presente estudo verificou se a variação do caixa proporciona remuneração adicional aos executivos, de modo que os estimule a gerar caixa operacional para as companhias. A amostra é composta por companhias abertas europeias, com período de observação entre 2007 e 2016. A principal técnica estatística empregada no estudo foi a regressão múltipla através de dados em painel com efeitos fixos robusto. Os resultados apontaram para um acréscimo médio de US$ 16.000 na remuneração anual dos executivos que geraram caixa operacional para as companhias. O estudo concluiu que o uso desta variável como indicador para remuneração executiva ainda é baixo, cerca de 15% das companhias a utilizam. No entanto, o uso da variação do caixa operacional pode apresentar melhores resultados na relação de agência, mitigando possíveis problemas e reduzindo o custo de agência.

Taxpayer Non-Compliance with Input Tax Credit Rules: Data and Policy Options for Canada

Input tax credits (ITCs) are a mechanism for businesses to recover the goods and services tax (GST)/harmonized sales tax (HST) paid on expenses related to their commercial activities. While many businesses claim ITCs in accordance with the rules, instances of non-compliance are apparent. Canada uses an invoice credit system that relies on the claimant's retention of documentation that can be checked to detect any overstatement of ITC entitlement. Absent an audit, businesses are generally not required to provide tax authorities with details of their transactions. This article draws on a study of case law relating to section 169 of the Excise Tax Act over the five-year period 2014-2019. Section 169 contains the general principles and rules for claiming ITCs. The study highlights various reasons for non-compliance with the ITC system in Canada, both intentional and unintentional. There are several recurring themes: the prevalence of fraudulent practices in certain industries, burdensome documentation and verification requirements, and taxpayers' misunderstanding of the rules for claiming ITCs, owing to ambiguous or otherwise complicated legal tests. In particular, the substantive rules concerning what constitutes a "commercial activity" for the purposes of claiming ITCs are often misapplied or misunderstood by claimants. Undisclosed agency relationships also cause problems where they result in the wrong name appearing on the documentation supporting an ITC claim. These issues point to certain flaws in the implementation of the rules under the GST/HST regime in Canada. In response to instances of suspected fraud, Canadian tax authorities have been results-driven in implementing increasingly onerous supplier verification requirements that must be met before an ITC is claimed, particularly where the supplier did not remit the applicable tax. This contributes to a high compliance burden for taxpayers. Some proposals have been made for changes that would mitigate the issues associated with undisclosed agency relationships, but there are still problems with the documentation requirements and other substantive rules for claiming ITCs that need to be addressed. The article concludes with a review of reform options proposed or adopted in other jurisdictions with a value-added tax. It also discusses a compliance measure implemented in Quebec (the attestation de Revenu Québec), which could be applied in other provinces. Specific recommendations are made for the adoption of e-invoicing and increased reporting requirements to address some of the reasons for non-compliance in Canada. A number of countries have moved toward implementing periodic or near-real-time reporting requirements. These measures show promise and suggest that Canada could move in that direction as well.

Stakeholder Agency Relationships: CEO Stock Options and Corporate Tax Avoidance

AbstractInfusing stakeholder agency theory with insights from behavioural agency theory, we describe a frame‐dependent relationship between CEO stock option incentives and tax avoidance. Our theoretical framework highlights the role of competing shareholder demands in providing a salient reference point for a CEO contemplating the implications of tax avoidance for their stock option wealth. In a study of 2,573 publicly listed U.S. firms between 1993 and 2014, we show that the implications of CEO stock option incentives are contingent on whether the firm’s effective tax rate is anticipated to be below or above the tax rate of peer firms – an outcome that the CEO can cast as balancing stakeholder demands. Consistent with our theoretical reasoning, we also show that, both above and below this reference point, the implications of option incentives for corporate tax avoidance are amplified by the level of activist institutional ownership and attenuated by the CEO’s ability to unwind their bond with shareholders through hedging. In doing so, our study offers an impetus for a broader stakeholder approach to governance research examining CEO incentive alignment.

Deep learning and principal–agent problems of algorithmic governance: The new materialism perspective

With the advent of artificial intelligence, stakeholders and experts cede their policy decisions for human affairs to computer algorithms in algorithmic governance. However, they face a new material principal-agent problem, which occurs between computer scientists as principals and computer algorithms as agents. Drawing upon new materialism, this study investigates informational asymmetry, malfeasance, agency relationships, and solutions related to the principal-agent problem. The inscrutability of computer algorithms is central to the notion of informational asymmetry and their relational agency is related to the notion of malfeasance. The principal-agent relationship is viewed as the output of socio-material assemblages in which computer scientists strive to build trust with computer algorithms. The inscrutability of computer algorithms coupled with their performativity would make it challenging for human principals to ascertain the malfeasance of computer algorithms as agents, thereby forming the material principal-agent problem. Finally, this study recommends an incremental, precautionary, and technologically pluralist approach to cope with this problem.

Informality costs: Informal entrepreneurship and innovation in emerging economies

AbstractResearch SummaryWe analyze the impact of informal entrepreneurship on innovation in emerging markets. Building on agency and imprinting theories, we introduce the concept of informality costs, that is, the higher agency costs from adverse selection and moral hazard problems caused by a firm's informal creation. These informality costs become imprinted and affect internal agency relationships among employees and managers and external agency relationships with suppliers and distributors, constraining the firms' incentives and ability to innovate even after formalization. As a result, informally created firms engage more in imitative and less in innovative new product development. We further propose that changes in ownership and the innovation environment alter the persistence of informality costs. Specifically, foreign firm and business group ownership reduces the persistence of informality costs and results in more innovativeness, while state ownership heightens informality costs and leads to less innovativeness. Moreover, improvements in national innovation systems decrease informality costs, strengthening the innovativeness of informally created firms.Managerial SummaryWe study how the informal creation of new ventures in emerging economies affects their innovation after they become formal firms. We propose that informally created new ventures suffer from informality costs established as a result of being informal at the beginning of their lives that reduce their incentives and ability to innovate. As a result, these firms tend to introduce new products that are imitative rather than innovative. We also propose that changes in the firm's ownership and in the national innovation system alter the persistence of informality costs and their impact on innovation. First, informally created new ventures acquired by foreign firms or private business groups have reduced informality costs and innovate more, while those acquired by the state have enhanced informality costs and imitate more. Second, national innovation system improvements reduce informality costs and support innovativeness.

Revising Machine from Within: Toward Mid-Range Theory of Agency in Inter-Organizational Relations

The pursuit of strategic or operational synergies between organizations frequently leads to the formation of an inter- organizational relationship (IOR) with a mutual interest. Despite an inherent pursuit of cooperation, such IORs are subject to agency problems caused by goal incongruence and information asymmetry between the independent organizations. In this study, we take the first steps towards a mid-range theory of agency in IORs. We begin with a review of IOR agency literature in the four fields of general management, marketing, operations management and economics. We identify similarities (e.g., an explicit focus on information asymmetry) and differences (e.g., assumptions about self-interest and opportunism) between the four disciplines. Then, we categorize the governance mechanisms identified in extant literature and create a framework of inter-organizational agency relationships explaining reasons for the differential deployment of governance mechanisms leading to four archetypical IOR forms.

VC in Emerging Markets: The Value of Patience

Due to multiple agency relationships, venture capitalists (VCs) may rush to exit their investments in entrepreneurial firms and pass returns on to the limited partners (LPs) who supply their capital. In emerging markets characterized by institutional voids and delays, there is a tension between this tendency and local entrepreneurs’ desire for more ‘patient’ (longer-term) capital. Premature exit can harm investee entrepreneurs, if it bluntly forces too great a focus on short term gains over long-term, sustainable performance. We investigate determinants of the VC investment holding period in 10 emerging economies using data from the Private Capital Research Institute (PCRI). We find that younger VCs, industry specialized VCs, and foreign VCs, particularly those investing in institutionally weaker host markets, exit deals faster. VCs in syndicated deals or with greater industry specialization also exit faster. Entrepreneurs, VCs, and LPs should all be aware of the potential downsides of these tendencies.

Efecto de Mediación de la Agencia Humana en Escenarios Educativos

La Agencia humana ha sido estudiada desde varias disciplinas de las ciencias sociales y aunque tienen similitudes en su conceptualización y características, existe un aislamiento en su estudio y ausencia de comunicación entre disciplinas. Se buscó probar el efecto de mediación de los tres modos de Agencia propuestos por Bandura en el contexto del aprendizaje en educación superior. Los análisis factoriales confirmatorios por modelamiento de ecuaciones estructurales de los resultados de la aplicación a estudiantes universitarios, del Inventario de Agencia en Situaciones Escolares (IASE), elaborado exprofeso para este estudio, permitió probar un efecto de mediación entre la agencia personal y la agencia colectiva a través de la agencia mediada. La relación tríadica de la agencia propuesta por la teoría, centrada en situaciones escolares, es un aporte a la etnopsicometría que permite asumir el papel de múltiples factores en el proceso de adquisición de aprendizajes complejos.

STATE OWNERSHIP AND INNOVATION: THE RELATIVE MERITS OF LOCAL AND CENTRAL STATE JUDGED BY INNOVATION PERFORMANCE

This paper compares the innovation performance of state-owned firms owned by different levels of government, with that of privately owned firms. Analysis of a 116-firm panel dataset for the Chinese solar photovoltaic industry from 1999 to 2015 suggests that government’s financial support increases the quantity of innovation outputs. However, the efficiency in utilising the financial resources is determined by the effectiveness of agency relationships. Applying agency theory to the Chinese politico-economic context indicates that innovation quality depends on length and complexity of agency chains, engagement of monitors, and the tenure of managers. By using forward citations and proportion of patents in active use, two measures of innovation quality that are more valid and reliable than patent counts, our study finds that municipally owned firms are superior in terms of innovation productivity to those under central ownership, and comparable to private firms.