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

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Author Info
Kirsten Foss
Nicolai J. Foss
Xose H. Vazquez-Vicente

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Abstract

We discuss and empirically examine a firm-level equivalent of the ancient problem of "tying the King<92>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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Publisher Info
Paper provided by DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies in its series DRUID Working Papers with number 03-10.

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Date of creation: 2003
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Handle: RePEc:aal:abbswp:03-10

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Related research
Keywords: managerial opportunism; credible commitments; organizational design; transaction cost eco;

Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executive Compensation

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