Anda di halaman 1dari 5

Organizational Analysis: Week 4 Questions (Agency Theory)

Jensen and Meckling

• jensen and meckling critique precursor theories of the firm as being actually theories of
markets in which firms operate, and they advance a theory of firm behavior that focuses
on the firm itself. is the next step to advance a theory of organizational behavior that
addresses not just organizations that look like organizations (eg firms, nonprofits, etc) but
also all groups that organize? (Vaughan Tan)

• Putting aside the excellent empirical critiques made by the social movement and
symbolic management perspectives, Jensen & Meckling make certain assumptions that
should be highlighted for discussion. In particular, in analyzing the agency cost of debt,
they emphasize the moral hazard / incentive costs, which they characterize as the desire
to reallocate returns from debt to equity holders by pursuing risk-seeking activity. Based
solely on this interpretation, they develop an equilibrium model for the level of debt,
premised on declining levels of debt agency cost as debt increases. How plausible is this
assumption, especially when you question why moral hazard costs necessarily outweigh
the monitoring costs (covenants) and bankruptcy costs of debt (both of which increase
with gearing)? It is entirely unsubstantiated in the paper, aside from the assertion above.
Without this assumption, and the downward sloping curve of the debt agency cost line,
the total agency cost would be increasing with debt, and the optimal would again be zero
debt, leaving agency theory without an answer on debt, like other economic theories of
the period (i.e., why the observed use of debt, even prior to the tax incentive of interest
deductibility). (Vince Feng)

• Jensen and Meckling state that agency costs are made up of “bonding expenditures by the
agent,” among other things. What are examples of such “bonding expenditures” and
would they be visible in all types of organizations? How would they change as one’s
level and position in an organization changes? Bonding expenditures seem like
inefficient ways to spend time, but is it possible to eliminate them? If bonding
expenditures went down, would monitoring costs have to go up (leaving the net agency
cost the same in the end anyway)? (Aaron Glassenberg)

Fama and Jensen

• Is the Fama and Jensen agency theory of the firm conceptually compatible with
Williamson’s transaction cost view? In other words, is the dimension of “make vs. buy”
(transactions) orthogonal to “combine vs. separate” (ownership and decision-making)? If
not, where do the conflicts exist? (Matt Lee)

• Fama and Jensen note the narrow set of circumstances under which it is efficient for the
functions of decision management, decision control, and residual risk bearing to be
combined to the same agents; namely, for small, noncomplex organizations where
residual claims are restricted to decision agents, or residual claims are held by other
agents with special relationships to decision agents (e.g., family members). According to
the authors, "family members have many dimensions of exchange with one another over

1
Organizational Analysis: Week 4 Questions (Agency Theory)

a long horizon and therefore have advantages in monitoring and disciplining related
decision agents. Business associates whose goodwill and advice are importatnt to the
organization are also potential candidates for holding minority residual claims of
organizations that do not separate the management and control of decisions." (p. 306) In
last week's readings, Powell noted several types of industries where networks were of
particular importance. How does this correspond with Fama and Jensen's recognition of
the value of relationships for controlling agency costs? (Rebecca Cadigan)

• Can Fama and Jensen's definition of agency theory, the idea that decision agents do not
bear a major share of wealth effects, apply to the healthcare market? The most simplistic
model of the healthcare market consists of three players: patient, physician, and insurance
company. Who manages the decision, who controls the decision, and who bears the
residual risks? (Sae Takada)

• This paper focuses on whether or not the "contract structures of all these organizations
(particularly small firms) separate the ratification and monitoring of decisions from the
initiation and implementation" (302). I'd like to know what the financials of these firms
look like- are the numbers better for those with separation than those with lesser
separation (ie like the CEO being the head of the board- there is a range of what might
deem separation). (Mary Carol Mazza)

• fama and jensen propose that firms where decision makers are not also recipients of
upside (or residuals) survive because of their structure (which separates decision control
from decision execution), and v/v that firms where decision makers are also recipients of
upside have a consolidated decision control and execution structure. is it reasonable to
assume (as they do) that the distribution of upside precedes the structuring of control
instead of both being mutually imbricated over multiple time periods? (Vaughan Tan)

Boundaries of Agency Assumptions

• It appears that reputation/status/social power (and a host of other factors) could all play
an extremely important role in agency costs, and that this is entirely ignored in most of
these papers? For instance, actors with the requisite status could almost entirely allay the
moral hazard costs for utilizing debt? Podolny of course has mentioned this in his work
on status signals (lowering the cost of operations, including financing), but not directly in
relation to agency theory? (Vince Feng)

• Besides contractual (economic), relational and political approaches, is there any


possibility that sometimes ideology or culture (not just normative values in an "over-
socialized" sense) can explain some of the actions within and among firms? (Phoenix
Wang)

• It seems that agency theory has a strong theoretical and empiric support regarding
traditional organizations (where the agent and principle are easily identified). My

2
Organizational Analysis: Week 4 Questions (Agency Theory)

question is how will the agency theory framework relate to more current organizational
forms such as virtual collaborative communities? (Hila Lifshitz)

• To what other subfields of sociology (or other social sciences) is agency theory helpful?
How might it apply to, say, the family? (Consider: Each family member owns stock in
the family, call it reputation. Everyone is an agent that can do things that cause the stock
to rise or fall (can go to jail to lower reputation, go to Harvard to increase it). So why do
fellow family members want good things for me? Because they want me to have good
things or because it will influence their reputation positively for me to get good things?
How do we control each other's actions to avoid a negative return of reputation?).
Anshul Kumar)

• I thought this week's readings on agency costs and the relationship between firm
ownership and control were interesting but divisive in conclusion. Jensen and Meckling
(1976) point out that managers and shareholders often have conflicting interests within
the organization and agent-principal relationships have inherent agency costs, but they
nonetheless conclude that this corporate form is efficient and profitable and has survived
"the market test against potential alternatives." I thought Fama and Jensen (1983) also
share the same general sentiment that the separation of ownership and control works in
corporate form through separation of the ratification and monitoring of important
decisions. But Davis and Thompson (1994) suggest that the current separation of
managers and shareholders is not inevitable, and perhaps not the most efficient or
functional. I am curious about what the class thinks about the efficiency of this form of
corporate governance. Did it "accidentally" emerge from a specific historical and political
context in America, or do we believe that it is the most competitive form in the market?
(Sabrina Huang)

Davis and Thompson

• The Davis and Thompson article shows how agency theory falls short of explaining
parsimoniously many important features of American corporations. This is mainly
because agency theory was dependent on an unrestricted takeover market, present in the
1980s, but strongly challenged in the early 1990s. I wonder if this change had less to do
with the four factors identified as necessary for a social movement to form and succeed
or Reagen era economics and more to do with the international effects of the end of the
Cold War. Even if shareholder organizations were created in 1985 and 1986, before the
end of the Cold War, the Cold War was clearly coming to an end at that time. I wonder if
the second wave of globalization increased the strength of shareholders, or at least
facilitated their organization. I can't identify the specific mechanisms, but given that the
historical period covered was the 1980s to 1990s, then I thought incorporating some post-
Cold War American domestic economic analysis would be worthwhile. (Mazen
Elfakhani)

• I think the last two articles present the best compelling sociological arguments against
agency theory. While I agree with them, I still wonder how the authors conceptualize the
motivations of managers and shareholders. They seem to uncritically accept the agency

3
Organizational Analysis: Week 4 Questions (Agency Theory)

problem as given and persisted resulting from the separation between ownership and
control, and so narrowly focus on the political opportunity and mobilization as factors
influencing shareholder movements. Do shareholders always have motivation to control
managers of the firm to which they invest, so do structural conditions only matter? Aren’t
their interests and motivations also evolved and socially constructed? (Dong Ju Lee)

• How does Davis and Thompson’s framework for understanding the contingent, political
nature of corporate control differ from Fligstein’s account of the evolution of conceptions
of control? What might be the areas of agreement and disagreement? How do each
respond to traditional economic explanations of corporate structure? (Elizabeth Hansen)

• I found the idea of using the social movement framework to explain the changing
capacities of shareholders and managers fascinating- I wish people had done similar
analysis on other areas of the firm other than corporate control (and perhaps there are like
in the banking system). I was curious the impact women might have had in this
movement- and also the general reaction of when women started joining boards of
directors. Also, how does the social movement in corporate governance/control parallel
certain social movements in American history/politics? (Mary Carol Mazza)

• When we look at the average length of CEO tenure (6.1 years in 2009 in a declining
trend) and the recent debate on the true role of boards of directors, we may be tempted to
argue that shareholders have gained preeminence among the players vying for corporate
control. Ghoshal (2005), for instance, stated that firms have turned the profit and loss
statement upside down in their list of priorities. He argued that shareholders went from
being regarded as the owners of residual cash flows to being viewed as the most
important stakeholder, one whose benefit is sometimes ensured at the expense of that of
other stakeholders, such as employees and society in general. Has the trend Davis and
Thompson (1994) identified 15 years ago truly develop in this way? (Luciana Silvestri)

Westphal and Zajac

• I think Westphal and Zajac made a very strong claim against agency theorists by showing
that stock market is not a rational institution to solve the agency problem. The market
response to the symbolic management is astonishing, and it opens a whole new picture of
market mechanism. I wonder how economists react to those arguments. (Dong Ju Lee)

• How do the various physician reimbursement schemes - fee-for-service, capitation (the


plan pays a fixed amount of income to the physician to care for a patient over a certain
period of time), and pay-for-performance - alter the checks and balances of the system?
How do they compare to Westphal and Zajac's definition of the long-term investment
plans? (Sae Takada)

• Westphal and Zajac demonstrate that symbolic actions have effects on shareholders,
whether or not those actions are implemented or not. This seems to be a little strange,
and so I was wondering why the stock price doesn’t eventually fall in light of a failed (or
avoided) LTIP implementation. A public corporation cannot withhold this information,
4
Organizational Analysis: Week 4 Questions (Agency Theory)

but are business reporters not paying attention to it? Why aren’t investors paying
attention? Is the stock market just too noisy (with information) to pay attention to
follow-through on this particular kind of issue? Why does talk hold greater weight than
action? (Aaron Glassenberg)

• (Westphal and Zajac) I felt greatly bothered by a topic perhaps of little interest- or at least
outside the immediate domain of the paper- how ethical is it for a company to announce
certain governance reforms and then not actually implement them- without any retraction
of the earlier statement? Over and over again the authors stated something similar to
"irrespective of whether such reforms are actually implemented in the organization" (p
131). Perhaps this is a case of bounded ethicality where the organization doesn't see
anything wrong with it- but I think it is. Worse still, perhaps they know it's unethical but
persist in doing so- as maybe such a practice has been institutionalized and accepted as
fair. I wonder if we were to conduct a study related to this in the lab- where we tell some
participants about a policy change (i.e. this is a case of publicly announcing it) and tell
others about a policy change but stating that the company didn't implement it and then
ask about the participants behavioral response as well as their thoughts on the company-
and we could do this directly or indirectly. And we could vary the type of company- one
that is known for high ethical standards, one for low, and one where the ethical standards
are relatively unknown by lay people. (Mary Carol Mazza)

Sociology of Governance

• As a sociologist, it seems sensible to want to knock down agency theory. But what might
we want to retain from agency theory? Are there any phenomena the theory (or pieces of
it) might be good for helping us understand? (Elizabeth Hansen)

• Social movement perspective surely contributes to the understanding of corporate


control. It seems that political relationships among managers, shareholders, state, and
government matter. Then, what phenomena, other than the proxy reform and executive
pay, can be explained by this perspective, rather than by agency theory in economics?
(Gru Han)

• What is the mechanism by which symbolic management creates perceived economic


value? Are managers who publicly commit to structures that mitigate agency really just
creating a punishment condition for future deviations from conformity? (Matt Lee)

• Westphal and Zajac (1998) and Davis and Thompson (1994) both mention examples of
initiatives that have had direct (and quite immediate) financial impact on shareholder
wealth. How can we expect shareholders to react to symbolic language on issues that may
have less immediate impact on their wealth, e.g. the implementation of environmentally
conscious policies at the firm? Likewise, can we expect shareholders to generate a
comparable social movement to enforce the effective adoption of these policies? How
does corporate social responsibility fit into Jensen and Meckling's (1976) view of the firm
as a bundle of contracts? (Luciana Silvestri)

Anda mungkin juga menyukai