Agency Theory, Accountability, and Financial Entrepreneurship

1 - ANALYTICAL EXPOSITION ..................... 1

2 - CRITICAL CONTEXT .......................... 5

3 - INTEGRATIVE CONCLUSION .................... 14

REFERENCES ......................................... 15

This paper presents a discussion of agency theory, accountability, and financial entrepreneurship. Agency, in law, refers to a practice where one party represents another in the transaction of activities (Getz, 1991). With respect to corporate control, agency refers to management's representation of the board of directors in the conduct of a firm's business, and to the representation of stockholders in the corporation by the board of directors in the conduct of the firm's business (Gomez-Mejia & Balkin, 1992).

Some theorists, researchers, and observers contend that evolution in the contemporary financial environment have created conflicts between shareholders and their agents, wherein shareholder interests are no longer always accorded preference (Lamm-Tennant & Collins, 1994). Others, however, contend that economic agency is an efficient form of organization, because a corporation has no owners in a meaningful sense (Lynn & Rao, 1995). The correct view likely lies at some point between these two views.

Communication between corporate management and shareholders is also an important part of agency. Among other things, agency theory holds that a conf

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nt with the opportunities available to local unit managers (Wright & McMahan, 1992). Opportunities for the practice of financial entrepreneurship are available to the local unit managers of many major corporations. These opportunities are made available to local unit managers through: (1) the traditional discretionary spending authority delegated to local unit managers in a decentralized organization; and (2) the authority delegated to local unit managers to acquire and divest their units of assets (Welbourne & Gomez-Mejia, 1995). The opportunities for financial entrepreneurship made available through traditional discretionary spending authority are both the easiest to comprehend and the most pervasive. A simple, but highly effective, example of financial entrepreneurship in this context involves off-balance sheet leasing (Staw, 1991). Through the use of off-balance sheet leasing, a local unit manager is able to acquire equipment or facilities or services, without reflecting: (1) capital expenditures; (2) depreciation charges; or (3) debt increases. Off-balance sheet leasing is closely related to the practice of contracting for services, which is engaged in by federal government departments and agencies in the United States,

Category: Business - A