Transaction cost economics and corporate governance: the case of CEO age and financial stake

Patrick L. McClelland · Jonathan Paul O'Brien

48 citations0/0 files storedManagerial and Decision Economics

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Corporate Finance and Governance Outsourcing and Supply Chain Management Organizational Management and Leadership

Abstract

Agency theory provides a valuable lens for understanding the role and importance of many varied governance mechanisms. We argue that transaction cost economics (TCE) provides a complementary theoretical lens for studying corporate governance because it illuminates the various contingencies that moderate the importance of alternative governance mechanisms. Using agency theory, we argue and find evidence that the confluence of advancing CEO age and large CEO stock holdings will cause the CEO to become overly risk-averse. Moreover, we use TCE to more fully explicate the ensuing performance consequences as well as the contextual factors that critically moderate this relationship. Copyright © 2010 John Wiley & Sons, Ltd.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1997Dynamic capabilities and strategic management 1986Generalized autoregressive conditional heteroskedasticity 1983Separation of Ownership and Control 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1964A Behavioral Theory of the Firm 1991Comparative Economic Organization: The Analysis of Discrete Structural Alternatives 1988Management ownership and market valuation

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