Predictions Of Agency Theory Research Articles

Ownership structure and board composition: A multi‐country test of agency theory predictions

AbstractPatterns of corporate governance and control differ significantly across countries because of national differences in structures of ownership and composition of boards of directors. Based on agency theory, we examine the relationship between ownership structure and the composition of the board of directors of 390 large manufacturing firms based in Japan, Western Europe and the United States. In particular, we examine how ownership concentration, bank control and state ownership affect the percentage of outside directors on the corporate boards. The results show that, consistent with predictions of agency theory, ownership structure has significant effects on board composition.

Contracts and Commitment: Economic and Sociological Perspectives on Employment Relations

This paper proposes a contract model of employment relations that integrates insights from economic and sociological perspectives on labor market transactions. The utility of the contract model is illustrated empirically using a large data set on organizations and their employees in U.S. and Japanese manufacturing industries. The results are consistent with many transaction cost and agency theory predictions, though they also indicate the need to supplement these economic theories with sociological explanations based on political, cultural, and other institutional differences.

Investment Returns of Life Insurers: Tests of Agency Theory and its Alternatives

Agency theory leads to proposals that managers of asset portfolios would not necessarily maximize net return on invested assets for any level of risk. Because investment income accounts for approximately one third of the total income of life insurers, the rate of return on invested assets can substantially affect an insurer's products and profitability. Prior research has shown systematic differences in general insurance expenses between classes of insurers, but continued viability of all classes of insurers through time. This study tests the predictions of agency theory and its alternatives concerning the investment yields of life insurers and finds offsetting differences in the investment results of these insurers. The study also finds significant economies of scale in the investment function that help explain what might otherwise appear to be an unjustified emphasis on firm growth. This study has important implications for participants in the industry, regulators, consumers and investors.

Executive Incentive Plans, Corporate Control, and Capital Structure

Agency theory recognizes that the interests of managers and shareholders may conflict and that, left on their own, managers may make major financial policy decisions, such as the choice of a capital structure, that are suboptimal from the shareholders' standpoint. The theory also suggests, however, that compensation contracts, managerial equity investment, and monitoring by the board of directors and major shareholders can reduce conflicts of interest between managers and shareholders. This research investigates the relationship between the firm's capital structure and 1) executive incentive plans, 2) managerial equity investment, and 3) monitoring by the board of directors and major shareholders. This paper finds a positive relationship between the firm's leverage ratio and 1) percentage of executives' total compensation in incentive plans, 2) percentage of equity owned by managers, 3) percentage of investment bankers on the board of directors, and 4) percentage of equity owned by large individual investors. These findings are consistent with the predictions of agency theory, suggesting, in turn, that capital structure models that ignore agency costs are incomplete.

Agency Theory and Alternative Predictions for Life Insurers: An Empirical Test

Agency theory predicts higher expenses in firms organized as mutuals than in stock companies. Other theories predict advantages for mutual life insurers. Using regression analysis on data from 41 companies through 19 years, this study finds significant differences in general insurance expenses between mutual and stock life insurers, but cannot refute the possibility that the differences are due to sales force expenses. Both higher commissions and higher expenses are found in companies operating outside New York's jurisdiction.