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ontentdownloadedfrom114.79.47.36onMon,07Sep201513:38:52UTCAllusesubjecttoJSTORTermsandConditions
Agency
Theory:
and
An Assessment
Review
KATHLEENM.EISENHARDT
StanfordUniversity
Agencytheoryisanimportant,yetcontroversial,theory.Thispaper
reviewsagencytheory,itscontributionstoorganizationtheory,andthe
extantempiricalworkanddevelopstestablepropositions.Theconclusions
arethatagencytheory(a)offersuniqueinsightintoinformationsystems,
outcomeuncertainty,incentives,andriskand(b)isanempiricallyvalid
perspective,particularlywhencoupledwithcomplementaryperspectives.
Theprincipalrecommendationistoincorporateanagencyperspectivein
studiesofthemanyproblemshavingacooperativestructure.
OnedayDengXiaopingdecidedtotake
his grandson to visit Mao. "Call me
granduncle," Mao offered warmly.
"Oh, I certainly couldn't do that,
ChairmanMao,"theawestruckchild
replied. "Why don't you give him an
apple?"suggestedDeng.Nosoonerhad
Mao done so than the boy happily
chirped,"Ohthankyou,Granduncle."
"You see," said Deng, "what in
centives
can
achieve."
("Capitalism,"1984,p.62)
"dangerous"(Perrow,1986,p.235).
Which is it:grand theory orgreat
sham?
The
camps(Jensen,1983),leadingto
agencytheorycontributetoorganizational
differencesininterpretation.For
theory?ProponentssuchasRoss(1973,
example,BarneyandOuchi(1986)
p.134)arguedthat"examplesofagency
arguedthatagencytheoryemphasizes
areuniversal."Yetotherscholarssuch
howcapitalmarketscanaffectthe
asPerrow(1986)claimedthatagency
firm,whereasotherauthorsmadeno
theoryaddressesnoclearproblems,and
referencetocapitalmarketsatall
HirschandFriedman(1986)calledit
(Anderson,1985;Demski&Feltham,
excessivelynarrow,focusingonlyon
1978;Eccles,1985;Eisenhardt,1985).
stockprice.Foreconomists,long
Thesecondquestionis,Whatdoes
accustomedtotreatingtheor
57
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ganization
firm,agency
fororganizational
theoryisnotsoobvious.
Thethirdquestion
icallyvalid?Thepoweroftheempirical
onagency
nomena
light
"hardlysubject
triestoexplain
224).Perrow
beingunrealisticallyonesided
neglect
Thefinalquestion
are
use
agency
requires
theagency
leverage.
Theprincipal
present
tionsofthetheoryto
andevaluate
overallconclusion
fuladdition
agency
tainty,
novel
and
theory,
mentary
58
vision
1973).Specifically,
theubiquitous
oneparty(theprincipal)delegates
other
Agency
shipusing
Meckling,
Agency
twoproblemsthatcanoccurinagency
ships.Thefirstistheagency
when
agent
fortheprincipaltoverifywhat
tuallydoing.Theproblem
cipalcannotverifythattheagent
appropriately.
sharing
agenthavedifferentattitudestoward
problem
maypreferdifferentactionsbecause
ferentriskpreferences.
Because
governing
paland
determining the most efficient contract
governing
the
principalagent
Thiscontentdownloadedfrom114.79.47.36onMon,07Sep201513:38:52UTCAllusesubjecttoJSTORTermsandConditions
Table 1
Agency TheoryOverview
Key idea
should
Principalagent relationships
reflect efficient
organization
of
information and risk
bearing
costs
Unitof
analysis
Human
assumptions
Organizational
assumptions
Information
positivistandprincipalagent(Jensen,
1983).Thetwostreamsshareacommon
unitofanalysis:thecontractbetweenthe
principalandtheagent.Theyalsoshare
commonassumptionsaboutpeople,
organizations,andinformation.However,
theydifferintheirmathematicalrigor,
dependentvariable,andstyle.
assumption
Contracting
problems
Problem
domain
such
1988;Eisenhardt,
fication
boardrelationships(e.g.,
Kosnik,
tures(e.g.,Argawal&Mandelker,
&Meckling,
son,
1988;Zenger,
agency
basic
agent
ior,but
tudes
as
1985;Eccles,
Fromitsrootsininformationeconomics,agencytheoryhasdevelopedalongtwo
lines:
59
PositivistAgency Theory
Positivistresearchershavefocusedonidentifyingsituationsinwhichtheprincipaland
agent
arelikelytohave
scribingthegovernance
the
search
agent
havefocusedalmost
case
owners
tions(Berle&Means,
Threearticleshavebeenparticularlyinfluen
tial.Jensen
ownership
inghowequity
managers'
agent's
oftheprincipalagent
is
research
and
(1980)discussed
labormarkets
are
top
scribed
informationsystemthatthestockholders
largecorporations
portunismoftopexecutives.
leagues
extended
suchasgolden
ing.
Froma
stream
ing
agency
thisinterestas"whycertain
tionsarise."
ernance
positiviststream.
used
executives.
thegovernance
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comebasedcontractsareeffectiveincurbingagentopportunism.Theargumentisthat
suchcontractscoalignthepreferencesofagentswiththoseoftheprincipalbecausethe
rewardsforbothdependonthesameactions,and,therefore,theconflictsofself
interestbetweenprincipalandagentarereduced.Forexample,JensenandMeckling
(1976)describedhowincreasingthefirmownershipofthemanagersdecreases
managerialopportunism.Informalterms,
Proposition1:Whenthecontractbetweentheprincipalandagentisoutcomebased,the
agentismorelikelytobehaveintheinterestsoftheprincipal.
Thesecondpropositionisthatinformationsystemsalsocurbagentopportunism.
Theargumenthereisthat,sinceinformationsystemsinformtheprincipalaboutwhat
theagentisactuallydoing,theyarelikelytocurbagentopportunismbecausethe
agentwillrealizethatheorshecannotdeceivetheprincipal.Forexample,Fama(1980)
describedtheinformationeffectsofefficientcapitalandlabormarketsonmanagerial
opportunism,andFamaandJensen(1983)describedtheinformationrolethatboards
ofdirectorsplayincontrollingmanagerialbehavior.Informalterms,
Proposition2:Whentheprincipal
tiontoverifyagent
likelytobehave
therole
has
problem
mecha
Atitsbest,positivistagency
gardedas
more
1983).However,
nizational
Michaels,
bymicroeconomists
rigor
agency
search
terest ("MeetMike," 1988).
complex
(Jensen,
theory
60
PrincipalAgentResearch
Principalagentresearchersareconcernedwithageneraltheoryoftheprincipalagent
re
lationship,atheorythatcanbe
ployeremployee,lawyerclient,
andotheragencyrelationships
1978).Characteristicofformaltheory,theprincipalagentparadigminvolvescareful
specifi
cation
logical
Incomparison
cipalagent
and,
scholars.
theory
focused
widely
palagent
greater
tions.Incontrast,
cused
theowner/CEO
ration.
cludesmanymoretestableimplications.
Fororganizational
provide
ofthe
Rather,
streams
identifiesvariouscontractalternatives,
cipalagent
themostefficientundervarying
come
ofassumpti
deduction
(Perrow,
knownpos
interest
Finally,
backgrou
theory.How
andothervariables
Thefocusoftheprincipalagent
ondetermining
versus
agent.
between
suredoutcome,andanagentwho
averse
behind
whoare
should
outcome,
Thesimple
thanthepri
amorerisk
be
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capable
shouldberiskneutral.)Theapproach
plemodel
(e.g.,
simplecaseofcomplete
principal
Given
behavior,
haviorismostefficient.Anoutcomebased
tractwouldneedlessly
whoisassumedtobemoreriskaverse
principal.
Thesecond
notknow
Given
mayormaynothave
agencyproblemarisesbecause
andthe
principal
haved
twoaspects
Moralhazard
theagent.
maysimplynotputforththeagreedupon
That
moral hazard occurs when a research scientist
works
pany
corporatemanagement
scientist
fersto
agent.Theargument
claim
orsheishired.Adverse
Demski&Feltham,
thattheprincipal
the
appropriately.
is,
onapersonal
time,buttheresearch
isa
th
tohave
theprincipal
skills
while
verseselectionoccurswhenaresearchscientistclaimstohaveexperienceinascientific
orabilities
theagent
specialtyandtheemployercannotjudgewhetherthisisthecase.
Inthecaseofunobservablebehavior(duetomoralhcazardoradverseselection),the
principal has two options. One is to discover the agent's behavior by investing in
informationsystems
such as budgeting systems, reporting procedures, boards of directors, and additional
layersofmanagement.Suchinvestmentsrevealtheagent'sbehaviortotheprincipal,and
thesituationrevertstothecompleteinformationcase.Informalterms,
Proposition
tivelyrelatedtobehaviorbased
negatively
Theotheroptionistocontractontheoutcomes
oftheagent's
contractmotivatesbehavior
theagent's
pal,butat
agent.Theissue
areonlypartlyafunctionofbehaviors.Governmentpolicies,economicclimate,
competitorac
tions,
cause
The
resulting
not
onlythe
thatmustbebornebysomeone.Whenoutcomeuncertaintyislow,thecostsofshifting
risktotheagentarelowandoutcomebasedcontractsareattractive.However,as
uncertaintyincreases,itbecomesincreasinglyexpensivetoshiftriskdespitethe
motivationalbenefitsofoutcomebasedcontracts.Informalterms,
Proposition4: Outcomeuncertainty ispositively relatedto behaviorbasedcontracts and
negativelyrelatedtooutcomebasedcontracts.
Thissimpleagency
invarying
&Feltham,
strom,1979;Shavell,
ofprincipalagent
tween(a)thecostofmeasuring
thecostofmeasuring
risktotheagent.
Anumberofextensions
arepossible.
riskaverse
Research
catesthat
technologicalchange,and
uncontrollable
61
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attitudes.
lessriskaverse(e.g.,
comesmoreattractivetopassrisktotheagent
usinganoutcomebased
astheagentbecomes
creasingly
formal terms,
Proposition 5: The risk aversion of the
agent is positively related to behavior
basedcontractsandnegativelyrelatedto
outcomebasedcontracts.
Similarly,astheprincipalbecomesmore
riskaverse,itisincreasinglyattractiveto
passrisktotheagent.Informalterms,
Proposition6:Theriskaversion
isnegatively
tracts
based
Another
ofgoalconflictbetween
(e.g.,
highly
1979)orinsituations
waytoselfless
isnogoal
principal
orherbehavior
decreases,
imperative
theissue
Under
behaviorbased
tive.Informalterms,
Proposition7:Thegoalconflictbetween
principalandagentisnegativelyrelated
to behaviorbased contracts and
positively related to outcomebased
contracts.
Anothersetofextensionsrelatestothe
task performed by the agent. For
example,theprogammabilityofthetask
islikelytoinfluencetheease
ofmeasuring
Programmability
whichappropriatebehaviorbythe
bespecified
aretailsalescashier
thanthatofahightechnology
Theargumentisthatthebehavior
gaged
serve
grammedthetask,themoreattractiveare
longtimetocomplete,involvejointorteam
effort,orproducesoftoutcomes.Inthese
circumstances, outcomes are either
difficulttomeasureordifficulttomeasure
withinapracticalamountoftime.When
information abouttheagent'sbehavioris
attractive.Incontrast,whenoutcomesare
readilymeasured,outcomebasedcontracts
aremoreattractive.Informalterms,
Proposition9:Outcomemeasurabilityis
negatively related to behaviorbased
contracts and positively related to
outcomebasedcontracts.
62
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comebasedcontractsmoreattractive.Informalterms,
Proposition10:Thelengthoftheagencyrelationshipispositivelyrelatedtobehaviorbased
contractsandnegativelyrelatedtooutcomebasedcontracts.
2).Atitsroots,agencytheoryisconsistentwiththeclassicworksofBarnard(1938)onthe
natureofco
operative
ontheinducements
ployment
theheart
inherent
ences
sential
Agency
elsoforganizations.
perspectives
atthe
organizational
1981).Also,
asymmetry
participants
enceisthatinpoliticalmodels
resolved
coalitionsthe
science.
through
pricemechanism
Agency
tionprocessing
ory(Chandler,
&Lorsch,
tiontheories.Theyassume
boundedly
tributedasymmetrically
zation.Theyalsoareefficiency
theyuseefficientprocessing
criterionforchoosing
forms(Galbraith,
thetwoistheirfocus:Incontingency
searchers
turingofreporting
making responsibilities (e.g., Galbraith,
engage
individual
1973;
Lawrence
theorytheyareconcerned
structuring
fromthese
terns.Forexample,
wewould
organized
Table2
ComparisonofAgency TheoryAssumptionsandOrganizationalPerspectives
Assumption
Selfinterest
Goalconflict
Boundedrationality
Informationasymmetry
Preeminenceofefficiency
Riskaversion
Informationasacommodity
63
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Usingagency
withwhether
ture
tives.
controlliterature(e.g.,
Forexample,
chi's
tionships
susoutcome
theory'slinkingtaskprogrammability
surability
hardt,
tionships
iorcontrol,and
outcomes)
Ouchi's
frameworktoinclude
assuming
agency
gruencebetweenpeopleand,therefore,
duced
Motivationissuesdisappear.
ences
zationalcontrolliteraturearethe
tionsofprincipalandagent
outcomeuncertainty(Propositions
ties
(Williamson,
chi(1986),thetheories
are
(1979)linking
1985).Tha
(1979)ex
theory.C
need
with
interest
have
similar
archiesroughlycorrespondtobehaviorbasedcontracts,andmarketscorrespondto
outcomebasedcontracts.However,thetwotheoriesarisefromdifferenttraditionsin
economics(Spence,1975):Intransactioncosttheorizingweareconcernedwith
organizationalboundaries,whereasinagencytheorizingthecontractbetween
cooperatingparties,regardlessofboundary,ishighlighted.However,themostimpor
tantdifferenceisthateachtheoryincludesuniqueindependentvariables.In
transactioncosttheorytheseareassetspecificityandsmall
64
numbersbargaining.Inagencytheorytherearetheriskattitudesoftheprincipaland
agent, outcome uncertainty, and information systems. Thus, the two theories share a
parentage in economics, but each has its own focus and several unique independent
variables.
ContributionsofAgency Theory
Agencytheory
ofincentives
thinking(Perrow,
usthatmuch
likeitornot,
theoryalso
commonproblemstructureacrossresearchtopics.AsBarneyandOuchi(1986)described
it,organizationresearchhasbecomeincreasingly
topic,ratherthantheory,centered.
oryremindsusthatcommonproblem
doexistacross
sultsfromone
gration)maybegermane
monproblem
Agency
butionstoorganizational
treatment
formationisregarded
cost,
important
such
tors,
supervision,which
research.
caninvest
controlagent
Anillustrationofthisisexecutive
tion.Anumber
expressed
and
asbudgeting,
and
based
Stevenson,
1984).However,
isnot
should
including
executive
surprising
be
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richerinformationsystemscontrol
managerialopportunismand,therefore,
leadtolessperfor
mancecontingent
Oneparticularlyrelevantinformationsystem
formonitoringexecutivebehaviorsistheboard
ofdirectors.Fromanagency
canbe
holder
boards provide richer information,
compensa
tion
mance.
ecutives
onknowledge
likely.Executiveswouldthenberewarded
taking
risk/highpotential
beunsuccessful.
richer
likelytoengage
withstockholders'interests.Forexample,
anagencyviewpoint,behaviorssuch
greenmail
tobenefitthemanager
ers,arelesslikelywhen
itors
therichnessofboard
suredinterms
quency
subcommittees,
long
managerial
ber
ownership
Asecond
riskimplications.
have
prosperity,
outcome, and thatfutureisonly partly
controlled
byorganization
fects
gence
vation
tends
ramifications
implications
65
viewed
intermsofinability
isthatoutcomeuncertainty
ences
ence
Verticalintegrationprovidesanillustration.
Forexample,
thattechnological
notaffectthe"makeorbuy"decision
nentsinalargeautomobile
cipal
explain
framework.However,
withagencythinkingifthemanagers
tomobile
sumption
relative
nent).According
predictthatsuchariskneutralprincipal
tively
whichwasWalkerandWeber'sresult.
thiscase,
limited
uncertainty:
large.Inthiscase,
mayberiskaverse
agency
agers
tainty.Inparticular,
morelikelytochoose
transferringrisktothesupplying
agency
ersare
haviorbased
ecutives
based
EmpiricalResults
Researchers in several disciplines have
undertaken empirical studies of agency
theory. These studies, mirroring the two
streams of theoretical agency research,
reverse
areinTable3.
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93
to
;5
to
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>
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(1)
>
(1)
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to
CV)
66
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UTCAllusesubjecttoJSTORTermsandConditions
agencytheoryarguments
1976),managercontrolled
nificantly
lated)acquisitions
Alongthesamelines,WalkingandLong
(1984)studiedmanagers'
bids.Theirsample
porations
between
takeover
butitmaybeintheinterestsofmanagers
becausetheycanlosetheirjobsduringa
takeover.Consistentwithagencytheory
(Jensen&Meckling,1976),theauthors
foundthatmanagerswhohavesubstantial
equitypositionswithin
68
theirfirms(outcomebased
likelytoresisttakeoverbids.
Theeffectsofmarketdiscipline
lationships
study
(principals)
andgas
taxand
toassess
nance
tensive
incentives
withagency
foundthatlongrunreputationeffectsofthe
marketcoalignedtheshortrunbehaviorsof
the general partner with the limited
partners'welfare.
Kosnik(1987)examined
mechanism
boardofdirectors.Kosnikstudied
corporations
tween
agency
ticsto
(payinggreenmailisconsidered
holders'interests).Aspredicted
ory(Fama&Jensen,
thatresisted
ofoutsidedirectorsandahigher
outside
Ina
(1987)examined
firmsecurities
tweenstockholdersandmanagement.
Specifically,theystudiedtherelationship
betweenstockandstockoptionholdingsof
executivesandwhetheracquisitionand
financingdecisionsweremadeconsistent
withtheinterestsofstockholders.Ingeneral,
managerspreferlower
riskacquisitions
Argawal
sample
acquisitions
1982.Consistent
&Meckling,
(outcomebased
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UTCAllusesubjecttoJSTORTermsandConditions
sitionandfinancingdecisionsthatwere
moreconsistentwithstockholderinterest.
Thatis,executivestockholdings
appearedtocoalignmanagerial
preferenceswiththoseofstockholders.
Singh and Harianto (in press) studied
goldenparachutesinamatchedsampleof
84 Fortune 500 firms. Their study
includedvariablesfrombothagencyand
managerialistperspectives.
Consistentwithagencytheory(Jensen&
Meckling,1976;Fama&Jensen,1983),
theauthorsfoundthatgoldenparachutes
are used to coalign executive interests
with those of stockholders in takeover
situations, and they are seen as an al
ternative outcomebased contract to
executive stock ownership. Specifically,
theauthorsfoundthatgoldenparachutes
werepositivelyassociatedwithahigher
69
port the positivist propositions described
earlier. Similarly, laboratory studies by
Dejongandcolleagues(1985),whicharenot
reviewedhere,arealsosupportive.
ResultsofthePrincipalAgentStream
The principalagent stream is more
directlyfocusedonthecontractbetweenthe
principal and the agent. Whereas the
positiviststreamlaysthefoundation(thatis,
thatagencyproblemsexistandthatvarious
contractalternativesareavail
able),theprincipalagentstream
mostefficientcontractalternativeinagiven
uation.Thecommon
istouseasubset
taskprogrammability,
outcomeuncertainty
tractisbehavior
lyingassumption
willchoosethemostefficientcontract,
althoughefficiencyisnotdirectlytested.
Inonestudy,Anderson(1985)probed
verticalintegrationusingatransactioncost
perspective
withagency
ined
resentative
sales
electronics
toryvariable
culty
amountofnonselling
Consistent
able
sales
Inotherstudies,
inedthechoice
based)andsalary(behaviorbased)
tionofsalespeople
study
while
agency
dictions.
predictions
tionsystems
andoutcome
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UTCAllusesubjecttoJSTORTermsandConditions
bynumberof
thesalaryversus
competitorsand
commission
failurerates)sig
choice.
aswell.
Conlon
tended
nificantlypredict
ting.Theyusedamultiperioddesign
theorymakes
agency
contributionsto
withagency
organization
foundthatinformationsystems
whether
theory,istestable,
agent's
and
performancecontingent(outcomebased)
Theyalso
70
dictions.
Finally,
develop
pricing.
13large
workbased
prescribe the
conditions
under
which
various
sourcing
bothefficient
framework
(arguably
andthe
contract)
transferpricing
Insummary,
agent
informationsystems
cles,1985;Eisenhardt,
tainty
ability
time(Conlon
grammability
Moreover,
variety
secondary
and interviews.
Recommenda
tions
forAgency
Theor
y
Resear
ch
Asargued
above,agency
hasempiricalsupport. newconcepts
Overall, it seems as
cal
reasonable to urge
ances,
the adoption of an
Studying
agency
theory ticularlyopportune
perspective when inmeasuring
investigatingthemany worksofKahneman
CrimmonandWehrung(1986),andMarchand
problemsthathavea
Shapira
principalagent
canmeasure
structure.Fivespecific realistically.
recommendations are measures
indirectmeasures
outlined below for
teristics
usingagencytheoryin characteristics
organizational re MarchandShapira,
search.
Focuson
Information
Systems,
KeyonTheory
RelevantContexts
Organizational
theory usually is
explored in settings
Outcome
Uncertainty,
appears to have
andRisk
greatest relevance.
For
example,
McGrath,
institutional and
thatresearch
resource dependence
Using
theories were devel
agency
should
oped primarily in
uncertainty,
large,
public
makethemostuniquecontributiontoorganiza
bureaucracies in
tionalresearch,
whichefficiencymay
piricalattention
not have been a
searchersplace
ordertoadvance
pressing
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UTCAllusesubjecttoJSTORTermsandConditions
concern.
thesame
theoryrelevant
Agency
whichcontracting
include
tialgoal
suchthatagent
ers
als,
im
uncertainty
theory
and
tries);and
jobsinwhich
Byemphasizing
useagency
leverage
tested.Topicssuchasinnovationand
suchastechnologybased
attractive
between
jobs
cult.
71
ExpandtoRicherContexts
Perrow(1986)andothershavecriticizedagency
theoryforbeing
few 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
thesevariousforms
of
selfinterest,
leading to a better
understanding of
when
such
behaviors will be
likely and when
they will be
effective.
ofpossible
Thesecondareais
pureformsofbehavior UseMultipleTheories
describedinthis
Arecent
articletoabroader
quently
rangeofcontract
Theyargued
altematives.Most
single
research(e.g.,
viewofhumannature,
theauthors
Anderson,1985;
nizational
Eisenhardt,1985,
yieldsamorerealisticview
1988)treatscontracts
Consistent
asadichotomy:
therecommendation
behaviorversus
orywithcomplementary
outcome.However,
orypresents
althoughitisvalid,
contractscanvaryon
acontinuumbetween complexity
spectives
behaviorandoutcome
plexity.
contracts.Also,
Thispointisdemonstrated
currentresearch
pirical
the Singh and
focusesonasingle
Harianto (in press)
reward,neglecting
manysituationsin
whichthereare
multiplerewards,
differingbytime
theory
hypotheses,butthey
spectives
of
are
such
hegemony
and
Bothmultipleandmixedrewards(behaviorand
managerialism.
outcome) present
These perspectives
empirical
difficulties,
but emphasizethepower
they
andpoliticalaspects
alsomirrorreallife.Therichness
ofgoldenparachutes
ityofagency
andgreen
searchers
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UTCAllusesubjecttoJSTORTermsandConditions
mail,respectively.Similarly,thestudiesby
Eisenhardt(1988)andConlonandParks
(1988)combineinstitutionalandagency
theories.Theinstitutionalemphasison
traditioncomplementstheefficiency
emphasisofagencytheory,andtheresultisa
betterunderstandingofcompensation.
OtherexamplesincludeAnderson(1985),
whocoupledagencyandtransactioncost,
andEccles(1985),whocombinedagencywith
equitytheory.
LookBeyondEconomics
The
tionalresearchers
nomics
arecarefuldevelopment
logical
ever,muchofthis
menthasalreadybeenaccomplished
theory.Fororganizational
offnow
zational researchers have comparative
advantage(Hirschetal.,1987).Torelytoo
heavilyon
economics
asefficient
styleistoriskdoingsecondrateeconomics
withoutcontributingfirstrate
organizationalresearch.Therefore,
althoughitisappropriatetomonitor
developmentsineconomics,itismoreuseful
totreateconomicsasanadjuncttomore
mainstreamempiricalworkby
organizationalscholars.
Conclusion
Thispaper
onagency
theoryisrevolutionaryand
tion(Jensen,1983)andtheotherarguing
theory
lacks
(Perrow,1986).Amorevalidperspective
themiddle.
realistic,
onproblems
thispaper
rounding
tional
study
suesfacing
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KathleenM.Eisenhardt(Ph.D.,StanfordUniversity)is
Assistant Professor at StanfordUniversity.Correspon
dencecanbesenttoherattheDepartmentofIndustrial
EngineeringandEngineeringManagement,346Terman
Building,StanfordUniversity,Stanford,CA94305.
Theauthor thanksPaulAdler,MicheleBolton,Philip
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cik, Kaye Schoonhoven, and Robert Sutton for their
commentsandsuggestions.
74
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