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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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  • Kirsten Foss
  • Nicolai J. Foss
  • Xose H. Vazquez-Vicente

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.

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

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