Incentives in Principal-Agent Relationships

Sappington, David E. M.

doi:10.1257/jep.5.2.45

Cited by 642 publications

(302 citation statements)

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“…6 As Rushmore and Baum (2001) discuss, it is very costly for a parent company to monitor individual hotels under franchise agreements. The principal-agent problem that arises between franchisors and franchisees has been explored in past research on the hotel industry (Michael 2000;Kosová, Lafontaine, and Perrigot 2010) and in many other contexts (Caves and Murphy 1976, Rubin 1978, Mathewson and Winter 1985, Holmstrom and Milgrom 1991, Sappington 1991. In this study, we focus not on agency problems that arise in the franchisor-franchisee relationship, but rather on agency problems that arise due to the more limited supervision of employees in company managed hotels (i.e., those under management contract and those that are company owned and operated) relative to franchised hotels.…”

Section: A Ownership and Management Structure In The Hotel Industrymentioning

confidence: 99%

Agency and Compensation: Evidence from the Hotel Industry

Freedman

Kosová

2012

Journal of Law, Economics, and Organization

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We examine the relationship between employee supervision and compensation by taking advantage of the structure of the hotel industry, in which many chains have both company managed and franchised properties. Given that supervision is less rigorous at company managed establishments, we estimate differences in wages and human resource practices not only across company managed and franchised hotels within chains, but also within individual hotels as they change organizational form. While we cannot rule out the use of efficiency wages, our results suggest that agency problems affect the timing of pay and employers' propensity to use performance-based incentives. We examine the relationship between employee supervision and compensation by taking advantage of the structure of the hotel industry, in which many chains have both company managed and franchised properties. Given that supervision is less rigorous at company managed establishments, we estimate differences in wages and human resource practices not only across company managed and franchised hotels within chains, but also within individual hotels as they change organizational form. While we cannot rule out the use of efficiency wages, our results suggest that agency problems affect the timing of pay and employers' propensity to use performance-based incentives.

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Section: A Ownership and Management Structure In The Hotel Industrymentioning

confidence: 99%

Agency and Compensation: Evidence from the Hotel Industry

Freedman

Kosová

2012

Journal of Law, Economics, and Organization

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“…Our findings are broadly in line with agencytheoretic approaches to the cascading set of principal-agent relationships in organizations. Classical agency perspectives focus on the relationship between managers (as agents) and "distant" shareholders (as principals) (Berle and Means 1932;Eisenhardt 1989;Sappington 1991). From the perspective of the latter group, close ties among the members of the former provide opportunities for collusive behavior and make it harder to monitor managers on an individual basis (Daily and Schwenk 1996;Ocasio 1994).…”

Section: Summary and Discussionmentioning

confidence: 99%

“…A CEO may groom a manager with whom they have a close relationship as a potential successor or provide other opportunities for career advancement (Adler and Kwon 2002). From the (Eisenhardt 1989;Sappington 1991), interpersonal ties may help prevent the emergence of problems such as opportunistic behavior, private benefit seeking, and others typically found in the relationship between the CEO and other TMT members (Cruz, Gomez-Mejia, and Becerra 2010;Hermalin and Weisbach 1998). Likewise, strong interpersonal ties may also limit possible scapegoating behavior prompted by the CEO, as sacrificing an affiliated executive is likely to be perceived as an acknowledgement of the duo's fault (Khanna and Poulsen 1995).…”

Section: 1mentioning

confidence: 99%

Hanging Together, Together Hung? Career Implications of Interpersonal Ties Between CEOs and Top Managers

Hilger

Richter

Schäffer

2013

Bus Res

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Is it good or bad for senior executives to have strong interpersonal ties to the CEO? We argue that a strong relationship with the CEO raises the likelihood that a top manager stays in office or makes an upward career move when the CEO leaves office voluntarily. At the same time, such interpersonal ties also reinforce the negative spillover effects of a dismissal of the CEO on the career prospects of the manager concerned. Our empirical analysis lends support to both arguments. We contribute to managerial succession research by underlining the ambivalence of interpersonal ties within top management teams. JEL classification: D85, M51, G30Keywords: corporate governance, interpersonal ties, top executive careers, top executive turnover, top management teams Manuscript received February 6, 2012, accepted by Peter Walgenbach (Management) October 29, 2012. spects. Given the generally positive portrayal of interpersonal ties to the CEO in the literature so far (e.g., Cao, Maruping, and Takeuchi 2006;Collins and Clark 2003), we highlight a potential ambivalence in such ties, at least in critical situations such as the dismissal of the CEO. In our empirical study, we investigate the career implications of interpersonal ties to the CEO from the perspective of a senior manager in a functional role that exists in virtually every large company, namely the Chief Financial Officer (CFO). CFOs are in a particularly challenging position, in that they should maintain a balance between independence from the CEO for the sake of greater neutrality and objectivity (Daily and Schwenk 1996), and closeness to the CEO as the primary strategic partner (Arthaud-Day, Certo, Dalton, and Dalton 2006;Collins, Masli, Reitenga, and Sanchez 2009;Tulimieri and Banai 2010;Zorn 2004). Using a matched-pair design, we analyze data on 77 CFO-turnover events in large, stock-market-quoted companies in Germany between 1999 and 2006 to shed light on the ambivalence of strong interpersonal ties to the CEO. Using logistic regression techniques, we find support for our central expectations, namely that strong interpersonal ties to a CEO help to keep a top manager in office. At the same time, when the CEO leaves office, strong ties reinforce the effect of the CEO's departure on the likelihood that the TMT member will leave their position, too: If the CEO leaves for routine reasons, then a strong relationship with that CEO enhances the likelihood that the TMT member concerned will make an upward career move through internal promotion or a move to a better position elsewhere. However, if the CEO is dismissed, a strong relationship with that CEO increases the TMT member's risk of also being dismissed. Our findings add to managerial succession research (Cao, Maruping, and Takeuchi 2006;Fee and Hadlock 2004;Mian 2001;Shen and Cannella 2002a) by highlighting the ambivalence of strong interpersonal ties. 2Theory and Hypotheses 2.1The Importance of Relationships between TMT Members and the CEO According to social network perspectives, interpersonal ties am...

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“…• Lack of experience and expertise of the client with contract management [13,17] • Measurement problems [1,8] • Lack of experience and expertise of the supplier with the activity [13] Loss of organizational competencies [12,13,16,27] Factors leading to outcome :…”

Section: Methodsmentioning

confidence: 99%

IT outsourcing risk management at British Petroleum

Aubert

Patry

Rivard

et al.

Proceedings of the 34th Annual Hawaii International Conference on System Sciences

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CIRANOLe CIRANO est un organisme sans but lucratif constitué en vertu de la Loi des compagnies du Québec. Reproduction partielle permise avec citation du document source, incluant la notice ©. Short sections may be quoted without explicit permission, provided that full credit, including © notice, is given to the source. ISSN 1198-8177Ce document est publié dans l'intention de rendre accessibles les résultats préliminaires de la recherche effectuée au CIRANO, afin de susciter des échanges et des suggestions.

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Incentives in Principal-Agent Relationships

Cited by 642 publications

References 55 publications

Agency and Compensation: Evidence from the Hotel Industry

Agency and Compensation: Evidence from the Hotel Industry

Hanging Together, Together Hung? Career Implications of Interpersonal Ties Between CEOs and Top Managers

IT outsourcing risk management at British Petroleum

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