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What is Agency Theory

Chapter 8
Competitiveness, Organizational Management, and Governance in Family Firms
Theory used to explain the relationships between business principals and their agents, especially those between owners and managers.
Published in Chapter:
Leverage and Family Firms: A Multi-Theoretical Approach
Sergio Camisón-Haba (Universitat de València, Spain), José Antonio Clemente (Universidad Internacional de La Rioja, Spain), Beatriz Forés (Universitat Jaume I, Spain), and Melanie Grueso-Gala (Universitat de València, Spain)
Copyright: © 2020 |Pages: 18
DOI: 10.4018/978-1-7998-1655-3.ch008
Abstract
This chapter analyses the relationship between ownership structure and leverage, providing an integrated theoretical approach that combines traditional financial theories, agency theory, and recently developed theories relating to non-financial preferences. The results show that, after controlling for endogeneity, being a family firm has a positive effect on the propensity to incur debt. These findings add to the existing body of literature and underline the need for a multi-theoretical approach when explaining the capital structure of family firms. The authors apply panel data methodology to control for individual heterogeneity of family firms. The chapter uses a sample of Spanish firms operating in the tourism industry.
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Chapter 16
R&D Activities in Family Firms
An agency relationship is described as a situation in which one party (the principal) delegates work to another party (the agent). Agency theory attempts to explain two problems. Type I agency problem consists of the separation between ownership and control, which leads to a divergence between management and owner interests. Type II agency problem arises from conflicts between controlling and non-controlling shareholders, which can result in executive entrenchment.
Published in Chapter: R&D Activities in Family Firms; From: Handbook of Research on Internationalization of Entrepreneurial Innovation in the Global Economy
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Chapter 1
Corporate Social Responsibility and Financial Information: Theoretical Approaches and Recent Developments
An agency relationship is described as a situation in which one party (the principal) delegates work to another party (the agent). Agency theory attempts to explain two problems. The type I agency problem consists of the separation between ownership and control, which leads to a divergence between management and owner interests. The type II agency problem arises from conflicts between controlling and non-controlling shareholders, which can result in executive entrenchment.
Published in Chapter: Corporate Social Responsibility and Financial Information: Theoretical Approaches and Recent Developments; From: Conceptual and Theoretical Approaches to Corporate Social Responsibility, Entrepreneurial Orientation, and Financial Performance
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Chapter 7
Arbitral Decisions from Around the World: A Brief Analysis
Agency theory is a principle that is used to explain and resolve issues in the relationship between business principals and their agents. Most commonly, that relationship is the one between shareholders, as principals, and company executives, as agents.
Published in Chapter: Arbitral Decisions from Around the World: A Brief Analysis; From: Policies, Practices, and Protocols for International Commercial Arbitration
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Chapter 19
The Impact of Accounting Information and Socioeconomic Factors in the Re-Election of Portuguese Mayors
The agency theory embodies an agency contract; there is a relationship between a principal (shareholder or citizen) and an agent (manager), and the main agent assumes the role of decision-making.
Published in Chapter: The Impact of Accounting Information and Socioeconomic Factors in the Re-Election of Portuguese Mayors; From: Handbook of Research on Modernization and Accountability in Public Sector Management
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Chapter 3
Diversity and Inclusive Leadership: An Entrepreneurial Opportunity?
A theory based on the separation of principal (shareholder) and agent (manager), which results in information asymmetry and conflicting interests.
Published in Chapter: Diversity and Inclusive Leadership: An Entrepreneurial Opportunity?; From: Handbook of Research on Promoting an Inclusive Organizational Culture for Entrepreneurial Sustainability
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Chapter 18
The Effect of Capital Structure on Profitability: An Empirical Analysis
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Chapter 9
Ownership and Operating Performance of Spanish Family IPO Firms
Theory used to explain the relationships between the different groups (stakeholders) that participate in an organization.
Published in Chapter: Ownership and Operating Performance of Spanish Family IPO Firms; From: Competitiveness, Organizational Management, and Governance in Family Firms
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Chapter 64
The Rhetoric of Corporate Governance Legality
Resolving two problems that can occur in agency relationships.
Published in Chapter: The Rhetoric of Corporate Governance Legality; From: Encyclopedia of Information Science and Technology, Third Edition
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Chapter 7
Earnings Management and Audit in Private Firms: The Effect of Financial Recuperation
Agency theory is concerned with resolving problems that arise in agency relationships. An agency relationship is described as a situation in which one party (the principal) delegates work to another party (the agent). This principal-agent relationship exists between employers and employees, lawyers and clients, or buyers and suppliers. Agency theory attempts to explain two problems. The first is the agency problem that arises when the goals of the principal and the agent diverge, and it is difficult for the principal to verify the agent’s actions. The second is the problem of risk sharing which occurs when the principal and the agent have different attitudes towards risk.
Published in Chapter: Earnings Management and Audit in Private Firms: The Effect of Financial Recuperation; From: International Financial Reporting Standards and New Directions in Earnings Management
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Chapter 8
Green Guardians: Unveiling the Strategic Role of HR in Environmental Sustainability Initiatives
A theory that examines the relationships and conflicts of interest between principals (e.g., shareholders) and agents (e.g., managers) within organizations, including the need for clear and transparent reporting of environmental impacts.
Published in Chapter: Green Guardians: Unveiling the Strategic Role of HR in Environmental Sustainability Initiatives; From: Building Sustainable Human Resources Management Practices for Businesses
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Chapter 1
Can Metaverse Act as a Board of Directors?
A theoretical framework that examines the relationship between principals (such as shareholders) and agents (such as managers) in organizations.
Published in Chapter: Can Metaverse Act as a Board of Directors?; From: Measuring the Effectiveness of Organizational Development Strategies During Unprecedented Times
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Chapter 12
With the Mediation of Internal Audit, Can Artificial Intelligence Eliminate and Mitigate Fraud?
Agency theory defines the relationship between agents and principal. Principal are hired by agents to perform the job and to achieve organizational mission and vision approved by agents.
Published in Chapter: With the Mediation of Internal Audit, Can Artificial Intelligence Eliminate and Mitigate Fraud?; From: Handbook of Research on the Significance of Forensic Accounting Techniques in Corporate Governance
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Chapter 15
Circular Economy for India: Perspectives on Stewardship Principles, Waste Management, and Energy Generation
Agency theory in political science mentions the “agent”, who can make decisions on behalf of another person or people (i.e., “principal”). The dilemma occurs where the agent is motivated to act in his/her own best interests, which are contrary to those of the principal, thus becoming a moral hazard.
Published in Chapter: Circular Economy for India: Perspectives on Stewardship Principles, Waste Management, and Energy Generation; From: Modernization and Accountability in the Social Economy Sector
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Chapter 36
Hollywood in the Classroom: A Resource for Teaching Business Ethics to Undergraduates
An academic theory that involves the relationships between principals (such as company shareholders) and agents (such as managers) and the costs of aligning the interests of the two groups.
Published in Chapter: Hollywood in the Classroom: A Resource for Teaching Business Ethics to Undergraduates; From: Handbook of Research on Teaching Ethics in Business and Management Education
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Chapter 3
Sustainable Development Through Corporate Social Responsibility of Public Sector Banks in India
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Chapter 2
Financial Indicators as Determinants of Mayoral Elections: Evidence From Italian Local Governments
Agency theory postulates that there is a relationship between a principal (shareholder or citizen) and an agent (manager), and the main agent assumes the role of decision making.
Published in Chapter: Financial Indicators as Determinants of Mayoral Elections: Evidence From Italian Local Governments; From: Financial Determinants in Local Re-Election Rates: Emerging Research and Opportunities
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Chapter 2
Corporate Governance Characteristics and Audit Fees: Evidence From Portugal and Spain
A supposition that explains the problems that can exist between principals (shareholders) and the agents (managers) resulting from the different goals among them.
Published in Chapter: Corporate Governance Characteristics and Audit Fees: Evidence From Portugal and Spain; From: Organizational Auditing and Assurance in the Digital Age
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Chapter 4
The Misappropriation of Organizational Power and Control: Managerial Bullying in the Workplace
A presumption that managers (agents) have a legal and fiduciary obligation to protect the rights and economic interests of the owners (principals) of the organization that employs them. To ensure this, owners must establish a system of robust governance and maintain continuous monitoring (policing) of managerial decisions and performance. Policing can be difficult and costly when ownership is separated from direct organizational control, which is often the case with large-scale corporations, fragmented ownership (multiple and dispersed shareholders), and when dealing with strong, professional, and inherently self-interested management.
Published in Chapter: The Misappropriation of Organizational Power and Control: Managerial Bullying in the Workplace; From: Handbook of Research on Human Factors in Contemporary Workforce Development
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Chapter 1
The Financial Development of Portuguese Entrepreneurial Businesses
The relationship between the principals, such as shareholders and agents such as the company executives and managers. A principal-agent relation exists when one party (the agent) agrees to act on behalf of another party (the principal). Agency theory views the firms as a bundle of contracts, and focuses on potential conflicts of interest arising from asymmetry of information between two contractual parties, i.e. the principal and the agent.
Published in Chapter: The Financial Development of Portuguese Entrepreneurial Businesses; From: Handbook of Research on Entrepreneurial Success and its Impact on Regional Development
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