A literature search of articles discussing the role of agency problems in management decisions.
Sample Solution
Annotated Bibliography: Agency Problems in Management Decisions
This annotated bibliography explores the role of agency problems in management decisions. Agency problems arise when the interests of a company's managers (agents) and its owners (principals) diverge. Managers, acting in their self-interest, may make decisions that benefit them but harm the company's value. This can manifest in various ways, from excessive risk-taking to empire-building. The literature explores the causes, consequences, and potential solutions to these agency problems.
1. Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Annotation: This seminal paper is a cornerstone of agency theory. Jensen and Meckling formally define the agency relationship and the associated costs. They argue that agency costs arise from the separation of ownership and control in modern corporations. The paper explores how different ownership structures can mitigate agency problems by aligning the interests of managers and owners. It lays the groundwork for much of the subsequent research on corporate governance and agency theory. This is a peer-reviewed research article.
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2. Eisenhardt, K. M. (1989). Agency theory: An assessment and review. Academy of Management Review, 14(1), 57-74.
Annotation: This article provides a comprehensive review and assessment of agency theory. Eisenhardt discusses the strengths and weaknesses of the theory and examines its application in various organizational contexts. She explores different perspectives within agency theory, including positivist and principal-agent perspectives. This review clarifies the core assumptions and limitations of the theory and highlights areas for future research. This is a peer-reviewed research article.
3. Daily, C. M., Dalton, D. R., & Cannella, A. A. (2003). Corporate governance: Theory and research. Academy of Management Journal, 46(3), 371-385.
Annotation: This article offers a broad overview of corporate governance, including its connection to agency problems. It examines the various mechanisms used to address agency issues, such as board oversight, executive compensation, and ownership structure. The authors discuss the theoretical underpinnings of corporate governance and review the empirical research on its effectiveness. They also identify emerging trends and challenges in corporate governance research. This is a peer-reviewed research article.
4. Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. The Journal of Finance, 52(2), 737-783.
Annotation: This paper provides a comprehensive survey of the corporate governance literature, with a strong focus on the role of agency problems. Shleifer and Vishny discuss the various mechanisms that can be used to control managerial behavior, including the board of directors, large shareholders, and the market for corporate control. They analyze the strengths and weaknesses of these mechanisms and discuss the implications for firm performance and value. This is a peer-reviewed research article.
5. Core, J. E., Holthausen, R. W., & Larcker, D. F. (1999). Corporate governance, CEO compensation, and firm performance. Journal of Financial Economics, 51(3), 371-406.
Annotation: This study empirically examines the relationship between corporate governance mechanisms, CEO compensation, and firm performance. The authors investigate how different governance structures, such as board independence and ownership structure, affect CEO pay and how these factors, in turn, influence firm value. The research provides evidence on the effectiveness of various governance mechanisms in mitigating agency problems and aligning managerial incentives with shareholder interests.
This is a peer-reviewed research article.