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A basic study of agency-cost source and municipal use of internal versus external control

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  • Kevan Jensen

Abstract

This study examines the association between agency-cost source and the use of internal control versus external control in municipal control systems. Specifically, I focus on the differences between internal and external control to determine whether characteristics of underlying organisations might lead to differential demand for internal and external control. Differential demand is argued to be linked to the manager's position as principle or agent (or alternatively the presence of internal or external agency costs, respectively). Internal control is posited to be used specifically to address internal agency costs; external control is posited to be used specifically to address external agency costs. Results are consistent with these hypotheses. Cities facing high levels of agency costs from voters and creditors tend to hire Big 5 auditors or auditors with municipal experience, but generally do not employ internal auditors or certified finance officers. Also, cities facing high levels of agency costs from employees tend to employ internal auditors or certified finance officers, but generally do not hire Big 5 auditors or auditors with municipal experience. There does not appear to be widespread substitution of internal and external control to address agency problems in municipal organisations. For data availability contact the author.

Suggested Citation

  • Kevan Jensen, 2005. "A basic study of agency-cost source and municipal use of internal versus external control," Accounting and Business Research, Taylor & Francis Journals, vol. 35(1), pages 53-67.
    • Handle: RePEc:taf:acctbr:v:35:y:2005:i:1:p:53-67
    DOI: 10.1080/00014788.2005.9729662
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    References listed on IDEAS

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    2. Weetman, Pauline, 2006. "Discovering the ‘international’ in accounting and finance," The British Accounting Review, Elsevier, vol. 38(4), pages 351-370.
    3. Furqan, Mehreen & Ijaz, Maha, 2014. "Publication Trends and Methodological Advancements in the Area of Agency Cost," Sukkur IBA Journal of Management and Business, Sukkur IBA University, vol. 1(1), pages 57-86, October.
    4. Sanghee Park & Byong Kim, 2014. "Who is Appointed to What Position? The Politics of Appointment in Quangos of Korea," Public Organization Review, Springer, vol. 14(3), pages 325-351, September.
    5. Dambrin, Claire & Löning, Hélène, 2008. "Uncovering Simons’ structuralism with cognitive theories: Interactive control systems and processes of learning," HEC Research Papers Series 896, HEC Paris.
    6. Justin Davis & G. Tyge Payne & Gary McMahan, 2007. "A Few Bad Apples? Scandalous Behavior of Mutual Fund Managers," Journal of Business Ethics, Springer, vol. 76(3), pages 319-334, December.

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