"Tying the Manager's Hands": How Firms can make Credible Commitments that make Opportunistic Managerial Intervention Less Likely

Kirsten Foss, Nicolai Foss () and Xosé Vázquez ()

No 03-10, DRUID Working Papers from DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies

Abstract: We 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.

Keywords: managerial opportunism; credible commitments; organizational design; transaction cost eco (search for similar items in EconPapers)
JEL-codes: D23 D74 L22 M12 (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-cbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://wp.druid.dk/wp/20030010.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aal:abbswp:03-10

Access Statistics for this paper

More papers in DRUID Working Papers from DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies
Bibliographic data for series maintained by Keld Laursen ().