Inhoud (per week)
Week 1:
- Agency Theory: an assessment and review (Eisenhardt)
- Providing CEOs with opportunites to cheat: the efects of complexity-based informaton
asymmetries on fnancial reportng fraud (Ndofor, Wesley and Priem)
Week 2:
- Do female and ethnically diverse executves endure inequity in the CEO positon or do they
beneft from their minority status? An empirical examinaton (Hill, Upadhyay, Beekun)
- Does One Size Fit All? Investgatng Pay–Future Performance Relatonships Over the
“Seasons” of CEO Tenure (Hou, Priem, Goranova)
- Americanizaton as a driver of CEO pay in Europe: The moderatng role of CEO power
(Schmid, Alteld, Dauth)
- CEOs on the edge: earnings manipulaton and stock-based incentve misalignment (Pfarrer,
Khanin)
Week 3:
- Strangers on the board: The impact of board internatonalizaton on earnings management of
Nordic frms (Hooghiemstra, Hermes, Oxelheim, Randoy)
- Last dance or second change? Firm performance, CEO career horizon, and the separaton of
board leadership roles (Krause, Semadeni)
- The value of independent directors: Evidence from sudden deaths (Nguyen, Nielsen)
Week 4:
- What’s the diference? Diversity constructs as separaton, variety, or disparity in
organizatons (Harrison, Klein)
- Board informal hierarchy and frm fnancial performance: exploring a tacit structure guiding
boardroom interactons (He, Huang)
- Boards of directors and frm performance: integratng agency and resource dependence
perspectves (Hillman, Dalziel)
Week 5:
- Boards’ response to shareholders’ dissatsfacton: the case of shareholders’ say on pay in the
UK (Alissa)
- Watchdog or lapdog? A behavioral view of the media as a corporate governance mechanism
(Bednar)
- Marching to the beat of diferent drummers: the infuence of insttutonal owners on
compettve actons (Connelly, Tihanyi, Certo, Hit)
- Agency conficts and auditng in private frms (Hope, Langli, Thomas)
Week 6:
- Top management conservatsm and corporate risk strategies: evidence from managers’
personal politcal orientaton and corporate tax avoidance (Christensen, Dhaliwal, Boivie,
Graffin)
- Labor market evaluaton versus legacy conversaton: what factors determine retring CEOs’
decisions about long-term investment? (Kang)
- The efect of board characteristcs on frm environmental performance (Villiers, Naiker,
Staden)
- Corporate governance and the rise of integratng corporate social responsibility criteria in
executve compensaton: efectveness and implicatons for frm outcomes (Flammer, Hong,
Minor)
,Agency Theory: an assessment and review (Eisenhardt)
Agency theory is about solving two problems:
- Problem arises when there is goal incongruence and when it’s difficult to verify work
- Problem of risk sharing with diferent aatudes toward risk.
Agency theory has two lines with a shared part: the
contract between principal and agent.
- Positvists researchers: focused on identfying
situatons with likely conficts and describing
the agents limit to self-serving behavior.
Concerned about describing the governance
mechanisms that solve the problem.
- Principal-agent researchers: giving a careful
specifcaton of assumptons followed by
logical deducton and mathematcal proof.
Broader focus and greater interest in general
theoretcal implicatons. Focus on optmal
contract (behavior versus outcome).
From its roots in informaton economics, agency
theory has developed along two lines:
positvist and principal-agent (Censen, a983). The two
streams share a common unit of analysis: the contract
between the principal and the agent.
Propositon 1: When the contract between the principal and agent is outtcome based, the agent is
more likely to behave in the interests of the principal.
Contracts co-align preferences of both partes because their income rely on the same actons
(less confict of self-interest).
Propositon 2: When the principal has informaton to verify agent behavior, the agent is more likely to
behave in the interests of the principal
Since informaton systems inform the principal about what the agent is doing, they curb the
agent opportunism because the agent will realize that he or she cannot deceive the principal.
Propositon 3: Informaton systems are positvely related to behavior-based contracts and negatvely
related to outtcome-based contracts
The simple model assumes goal confict between principal and agent, and a more risk averse
agent. The frst case, is when the principal knows what the agent has done outcome-
based contract would transfer risk to the agent, who is more risk averse. The second case is
when the principal does not know exactly what the agent has done self-interest may lead
to incongruence. Moral hazard is lack of efort on the part of the agent. Adverse selecton is
misrepresentaton of ability by the agent.
Propositon 4: Outtcome utncertainty is positvely related to behavior-based contracts and negatvely
related to outtcome-based contracts.
Outcome-based contract motvates behavior by coalignment preferences, but at the price of
transferring risk to the agent. The issue of risk arises because outcomes are only partly a
functon of behaviors. The resultng outcome uncertainty introduces not only the inability to
preplan, but also risk that must be borne by someone. When outcome uncertainty is low, the
costs of shifing risk to the agent are low and outcome-based contracts are atractve.
,Propositon 5: The risk aversion of the agent is positvely related to behavior-based contracts and
negatvely related to outtcome-based contracts.
As the agent becomes increasingly less risk averse (e.g., a wealthy agent), it becomes more
atractve to pass risk to the agent using an outcome-based contract.
Propositon 6: The risk aversion of the principal is negatvely related to behavior-based contracts and
positvely related to outtcome-based contracts.
As the principal becomes risk averse, it is increasingly atractve to pass risk to the agent.
Propositon 7: The goal conlict between principal and agent is negatvely related to behavior-based
contracts and positvely related to outtcome-based contracts.
If there is no goal confict, the agent will behave as the principal would like, regardless of
whether his or her behavior is monitored. As goal confict decreases, there is a decreasing
motvatonal imperatve for outcome-based contractng, and the issue reduces to risk-sharing
consideratons. Under the assumpton of a risk-averse agent, behavior-based contracts
become more atractve.
Propositon 8: Task programmability is positvely related to behavior-based contracts and negatvely
related to outtcome-based contracts.
Programmability is defned as the degree to which appropriate behavior by the agent can be
specifed in advance. The more programmed the task, the more atractve are behavior-
based contracts because informaton about the agent's behavior is more readily determined.
Retail sales clerks are paid behavior-based, entrepreneurs are compensated outcome-based.
Propositon 9: Outtcome measutrability is negatvely related to behavior-based contracts and positvely
related to outtcome-based contracts.
The simple model assumes that outcomes are easily measured. Some tasks require a long
tme to complete, involve jooint or team efort, or produce sof outcomes difficult to
measure or difficult to measure within a practcal amount of tme. When outcomes are
measured with difficulty, outcome-based contracts are less atractve.
Propositon 10: The length of the agency relatonship is positvely related to behavior-based contracts
and negatvely related to outtcome-based contracts.
When principals and agents engage in a long-term relatonship, principal learns and will be
able to assess behavior more readily.
Agency theory combines with multple models:
- Politcal model: both assume the pursuit of self-interest at the individual level and goal
confict at the organizatonal level and informaton asymmetry is linked to the power of
lower order partcipant. The diference is that in politcal models’ goal conficts are resolved
through bargaining, negotaton, and coalitons. In agency theory they are resolved through
the coalignment of incentves.
- Contngency theory: Both perspectves are informaton theories. They assume that
individuals are boundedly ratonal and that informaton is distributed asymmetrically
throughout the organizaton. They also are efficiency theories; that is, they use efficient
processing of informaton as a criterion for choosing among various organizing forms
(Galbraith, a973). The diference between the two is their focus: In contngency theory
researchers are concerned with the optmal structuring of reportng relatonships and
decision-making responsibilites (e.g., Galbraith, a973; Lawrence & Lorsch, a967), whereas in
agency theory they are concerned with the optmal structuring of control relatonships
resultng from these reportng and decision-making paterns.
, - Organizatonal control
- Transacton cost perspectve: self-interest and bounded ratonality. Focus on assets and small
numbers bargaining.
Organizatonal thinking makes two specifc contributons to organizatonal thinking.
o Informaton is regarded as a commodity: It has a cost, and it can be purchased.
Organizatons can invest in informaton systems to control agent opportunism (board
of directors monitor). When board gives more informaton compensaton less
likely based on frms’ performance. Richer informaton also enables executves to
behave in stockholders’ interest. Operatonally, the richness of board informaton
can be measured in terms of characteristcs such as frequency of board meetngs,
number of board subcommitees, number of board members with long tenure,
number of board members with managerial and industry experience, and number of
board members representng specifc ownership groups.
o A second contributon of agency theory is its risk implicatons organizatons have
uncertain futures environmental efects can afect outcomes. Agency theory
extends organizatonal thinking by pushing the ramifcatons (vertakkingen) of
outcome uncertainty to their implicatons for creatng risk. Uncertainty is viewed in
terms of risk/reward trade-ofs, not joust in terms of inability to preplan. The
implicaton is that outcome uncertainty coupled with diferences in willingness to
accept risk should infuence contracts between principal and agent.
There are two sides in agency theorists: positvists and principal-agent stream.
Agency positvists identfes a policy or behavior in which stockholder and management interest
diverge. Good examples are given with mergers.
- Conglomerate mergers not in interest of stockholders they can diversify their portolio
atractve to managers with fewer methods to diversify. Consistent with agency theory
arguments, manager-controlled frms engaged in signifcantly more conglomerate
acquisitons and were more diversifed. Resistance to takeover bids is not in the stockholders'
interests, but it may be in the interests of managers because they can lose their joobs during a
takeover. Managers with equity less likely to resist. Boards of companies that resisted
greenmail (forcing takeover by buying many shares) had a higher proporton of outside
directors. In general, managers prefer lower risk acquisitons and lower debt consistent
with stockholders’ interest. Golden parachutes (executve dismissed by takeover) are
positvely associated with a higher probability of a takeover atempt and negatvely
associated with executve stock holdings. Employee stock ownership (outcome-based
contract) would co-align the interests of employees with stockholders. Shareholders and top
executves can diverge in interest with: takeover atempts, debt versus equity fnancing,
acquisitons, and divesttures, and for the mitgaton of agency problems (a) through
outcome-based contracts such as golden parachutes and executve stock holdings and, (b)
through informaton systems such as boards and efficient markets.
Week 1:
- Agency Theory: an assessment and review (Eisenhardt)
- Providing CEOs with opportunites to cheat: the efects of complexity-based informaton
asymmetries on fnancial reportng fraud (Ndofor, Wesley and Priem)
Week 2:
- Do female and ethnically diverse executves endure inequity in the CEO positon or do they
beneft from their minority status? An empirical examinaton (Hill, Upadhyay, Beekun)
- Does One Size Fit All? Investgatng Pay–Future Performance Relatonships Over the
“Seasons” of CEO Tenure (Hou, Priem, Goranova)
- Americanizaton as a driver of CEO pay in Europe: The moderatng role of CEO power
(Schmid, Alteld, Dauth)
- CEOs on the edge: earnings manipulaton and stock-based incentve misalignment (Pfarrer,
Khanin)
Week 3:
- Strangers on the board: The impact of board internatonalizaton on earnings management of
Nordic frms (Hooghiemstra, Hermes, Oxelheim, Randoy)
- Last dance or second change? Firm performance, CEO career horizon, and the separaton of
board leadership roles (Krause, Semadeni)
- The value of independent directors: Evidence from sudden deaths (Nguyen, Nielsen)
Week 4:
- What’s the diference? Diversity constructs as separaton, variety, or disparity in
organizatons (Harrison, Klein)
- Board informal hierarchy and frm fnancial performance: exploring a tacit structure guiding
boardroom interactons (He, Huang)
- Boards of directors and frm performance: integratng agency and resource dependence
perspectves (Hillman, Dalziel)
Week 5:
- Boards’ response to shareholders’ dissatsfacton: the case of shareholders’ say on pay in the
UK (Alissa)
- Watchdog or lapdog? A behavioral view of the media as a corporate governance mechanism
(Bednar)
- Marching to the beat of diferent drummers: the infuence of insttutonal owners on
compettve actons (Connelly, Tihanyi, Certo, Hit)
- Agency conficts and auditng in private frms (Hope, Langli, Thomas)
Week 6:
- Top management conservatsm and corporate risk strategies: evidence from managers’
personal politcal orientaton and corporate tax avoidance (Christensen, Dhaliwal, Boivie,
Graffin)
- Labor market evaluaton versus legacy conversaton: what factors determine retring CEOs’
decisions about long-term investment? (Kang)
- The efect of board characteristcs on frm environmental performance (Villiers, Naiker,
Staden)
- Corporate governance and the rise of integratng corporate social responsibility criteria in
executve compensaton: efectveness and implicatons for frm outcomes (Flammer, Hong,
Minor)
,Agency Theory: an assessment and review (Eisenhardt)
Agency theory is about solving two problems:
- Problem arises when there is goal incongruence and when it’s difficult to verify work
- Problem of risk sharing with diferent aatudes toward risk.
Agency theory has two lines with a shared part: the
contract between principal and agent.
- Positvists researchers: focused on identfying
situatons with likely conficts and describing
the agents limit to self-serving behavior.
Concerned about describing the governance
mechanisms that solve the problem.
- Principal-agent researchers: giving a careful
specifcaton of assumptons followed by
logical deducton and mathematcal proof.
Broader focus and greater interest in general
theoretcal implicatons. Focus on optmal
contract (behavior versus outcome).
From its roots in informaton economics, agency
theory has developed along two lines:
positvist and principal-agent (Censen, a983). The two
streams share a common unit of analysis: the contract
between the principal and the agent.
Propositon 1: When the contract between the principal and agent is outtcome based, the agent is
more likely to behave in the interests of the principal.
Contracts co-align preferences of both partes because their income rely on the same actons
(less confict of self-interest).
Propositon 2: When the principal has informaton to verify agent behavior, the agent is more likely to
behave in the interests of the principal
Since informaton systems inform the principal about what the agent is doing, they curb the
agent opportunism because the agent will realize that he or she cannot deceive the principal.
Propositon 3: Informaton systems are positvely related to behavior-based contracts and negatvely
related to outtcome-based contracts
The simple model assumes goal confict between principal and agent, and a more risk averse
agent. The frst case, is when the principal knows what the agent has done outcome-
based contract would transfer risk to the agent, who is more risk averse. The second case is
when the principal does not know exactly what the agent has done self-interest may lead
to incongruence. Moral hazard is lack of efort on the part of the agent. Adverse selecton is
misrepresentaton of ability by the agent.
Propositon 4: Outtcome utncertainty is positvely related to behavior-based contracts and negatvely
related to outtcome-based contracts.
Outcome-based contract motvates behavior by coalignment preferences, but at the price of
transferring risk to the agent. The issue of risk arises because outcomes are only partly a
functon of behaviors. The resultng outcome uncertainty introduces not only the inability to
preplan, but also risk that must be borne by someone. When outcome uncertainty is low, the
costs of shifing risk to the agent are low and outcome-based contracts are atractve.
,Propositon 5: The risk aversion of the agent is positvely related to behavior-based contracts and
negatvely related to outtcome-based contracts.
As the agent becomes increasingly less risk averse (e.g., a wealthy agent), it becomes more
atractve to pass risk to the agent using an outcome-based contract.
Propositon 6: The risk aversion of the principal is negatvely related to behavior-based contracts and
positvely related to outtcome-based contracts.
As the principal becomes risk averse, it is increasingly atractve to pass risk to the agent.
Propositon 7: The goal conlict between principal and agent is negatvely related to behavior-based
contracts and positvely related to outtcome-based contracts.
If there is no goal confict, the agent will behave as the principal would like, regardless of
whether his or her behavior is monitored. As goal confict decreases, there is a decreasing
motvatonal imperatve for outcome-based contractng, and the issue reduces to risk-sharing
consideratons. Under the assumpton of a risk-averse agent, behavior-based contracts
become more atractve.
Propositon 8: Task programmability is positvely related to behavior-based contracts and negatvely
related to outtcome-based contracts.
Programmability is defned as the degree to which appropriate behavior by the agent can be
specifed in advance. The more programmed the task, the more atractve are behavior-
based contracts because informaton about the agent's behavior is more readily determined.
Retail sales clerks are paid behavior-based, entrepreneurs are compensated outcome-based.
Propositon 9: Outtcome measutrability is negatvely related to behavior-based contracts and positvely
related to outtcome-based contracts.
The simple model assumes that outcomes are easily measured. Some tasks require a long
tme to complete, involve jooint or team efort, or produce sof outcomes difficult to
measure or difficult to measure within a practcal amount of tme. When outcomes are
measured with difficulty, outcome-based contracts are less atractve.
Propositon 10: The length of the agency relatonship is positvely related to behavior-based contracts
and negatvely related to outtcome-based contracts.
When principals and agents engage in a long-term relatonship, principal learns and will be
able to assess behavior more readily.
Agency theory combines with multple models:
- Politcal model: both assume the pursuit of self-interest at the individual level and goal
confict at the organizatonal level and informaton asymmetry is linked to the power of
lower order partcipant. The diference is that in politcal models’ goal conficts are resolved
through bargaining, negotaton, and coalitons. In agency theory they are resolved through
the coalignment of incentves.
- Contngency theory: Both perspectves are informaton theories. They assume that
individuals are boundedly ratonal and that informaton is distributed asymmetrically
throughout the organizaton. They also are efficiency theories; that is, they use efficient
processing of informaton as a criterion for choosing among various organizing forms
(Galbraith, a973). The diference between the two is their focus: In contngency theory
researchers are concerned with the optmal structuring of reportng relatonships and
decision-making responsibilites (e.g., Galbraith, a973; Lawrence & Lorsch, a967), whereas in
agency theory they are concerned with the optmal structuring of control relatonships
resultng from these reportng and decision-making paterns.
, - Organizatonal control
- Transacton cost perspectve: self-interest and bounded ratonality. Focus on assets and small
numbers bargaining.
Organizatonal thinking makes two specifc contributons to organizatonal thinking.
o Informaton is regarded as a commodity: It has a cost, and it can be purchased.
Organizatons can invest in informaton systems to control agent opportunism (board
of directors monitor). When board gives more informaton compensaton less
likely based on frms’ performance. Richer informaton also enables executves to
behave in stockholders’ interest. Operatonally, the richness of board informaton
can be measured in terms of characteristcs such as frequency of board meetngs,
number of board subcommitees, number of board members with long tenure,
number of board members with managerial and industry experience, and number of
board members representng specifc ownership groups.
o A second contributon of agency theory is its risk implicatons organizatons have
uncertain futures environmental efects can afect outcomes. Agency theory
extends organizatonal thinking by pushing the ramifcatons (vertakkingen) of
outcome uncertainty to their implicatons for creatng risk. Uncertainty is viewed in
terms of risk/reward trade-ofs, not joust in terms of inability to preplan. The
implicaton is that outcome uncertainty coupled with diferences in willingness to
accept risk should infuence contracts between principal and agent.
There are two sides in agency theorists: positvists and principal-agent stream.
Agency positvists identfes a policy or behavior in which stockholder and management interest
diverge. Good examples are given with mergers.
- Conglomerate mergers not in interest of stockholders they can diversify their portolio
atractve to managers with fewer methods to diversify. Consistent with agency theory
arguments, manager-controlled frms engaged in signifcantly more conglomerate
acquisitons and were more diversifed. Resistance to takeover bids is not in the stockholders'
interests, but it may be in the interests of managers because they can lose their joobs during a
takeover. Managers with equity less likely to resist. Boards of companies that resisted
greenmail (forcing takeover by buying many shares) had a higher proporton of outside
directors. In general, managers prefer lower risk acquisitons and lower debt consistent
with stockholders’ interest. Golden parachutes (executve dismissed by takeover) are
positvely associated with a higher probability of a takeover atempt and negatvely
associated with executve stock holdings. Employee stock ownership (outcome-based
contract) would co-align the interests of employees with stockholders. Shareholders and top
executves can diverge in interest with: takeover atempts, debt versus equity fnancing,
acquisitons, and divesttures, and for the mitgaton of agency problems (a) through
outcome-based contracts such as golden parachutes and executve stock holdings and, (b)
through informaton systems such as boards and efficient markets.
