Tying the Manager's Hands: How Firms Can Make Credible Commitments That Make Opportunistic Managerial Intervention Less Likely

Kirsten Foss, Nicolai Juul Foss, Xosé H. Vázquez-Vicente

Research output: Working paperResearch

Abstract

AbstractWe discuss and empirically examine a firm-level equivalent of the ancient problem of `tying the King's hands,' namely how to maximize managerial intervention for `good cause,' while avoiding intervention for `bad cause.' Managers may opportunistically intervene when such intervention produces private benefits. Overall firm performance is harmed as a result, because opportunistic managerial intervention harms employee motivation. The central point of the paper is that various mechanisms and factors, such as managers staking their personal reputation, employees controlling important assets, strong trade unions, corporate culture, etc. may function as constraints on managerial proclivities to opportunistically intervene. Thus, firms can make credible commitments that check managerial proclivities to opportunistically intervene. We derive 5 hypotheses from these ideas, and test them, using path-analysis, on a rich dataset, based on 329 firms in the Spanish food and electric/electronic industries.
Original languageEnglish
Place of PublicationKøbenhavn
Number of pages38
Publication statusPublished - 2003

Cite this

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title = "Tying the Manager's Hands: How Firms Can Make Credible Commitments That Make Opportunistic Managerial Intervention Less Likely",
abstract = "AbstractWe discuss and empirically examine a firm-level equivalent of the ancient problem of `tying the King's hands,' namely how to maximize managerial intervention for `good cause,' while avoiding intervention for `bad cause.' Managers may opportunistically intervene when such intervention produces private benefits. Overall firm performance is harmed as a result, because opportunistic managerial intervention harms employee motivation. The central point of the paper is that various mechanisms and factors, such as managers staking their personal reputation, employees controlling important assets, strong trade unions, corporate culture, etc. may function as constraints on managerial proclivities to opportunistically intervene. Thus, firms can make credible commitments that check managerial proclivities to opportunistically intervene. We derive 5 hypotheses from these ideas, and test them, using path-analysis, on a rich dataset, based on 329 firms in the Spanish food and electric/electronic industries.",
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N2 - AbstractWe discuss and empirically examine a firm-level equivalent of the ancient problem of `tying the King's hands,' namely how to maximize managerial intervention for `good cause,' while avoiding intervention for `bad cause.' Managers may opportunistically intervene when such intervention produces private benefits. Overall firm performance is harmed as a result, because opportunistic managerial intervention harms employee motivation. The central point of the paper is that various mechanisms and factors, such as managers staking their personal reputation, employees controlling important assets, strong trade unions, corporate culture, etc. may function as constraints on managerial proclivities to opportunistically intervene. Thus, firms can make credible commitments that check managerial proclivities to opportunistically intervene. We derive 5 hypotheses from these ideas, and test them, using path-analysis, on a rich dataset, based on 329 firms in the Spanish food and electric/electronic industries.

AB - AbstractWe discuss and empirically examine a firm-level equivalent of the ancient problem of `tying the King's hands,' namely how to maximize managerial intervention for `good cause,' while avoiding intervention for `bad cause.' Managers may opportunistically intervene when such intervention produces private benefits. Overall firm performance is harmed as a result, because opportunistic managerial intervention harms employee motivation. The central point of the paper is that various mechanisms and factors, such as managers staking their personal reputation, employees controlling important assets, strong trade unions, corporate culture, etc. may function as constraints on managerial proclivities to opportunistically intervene. Thus, firms can make credible commitments that check managerial proclivities to opportunistically intervene. We derive 5 hypotheses from these ideas, and test them, using path-analysis, on a rich dataset, based on 329 firms in the Spanish food and electric/electronic industries.

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