`Tying the manager's hands': constraining opportunistic managerial intervention

Authors: Foss, Kirsten; Foss, Nicolai J.; Vázquez, Xosé H.

Source: Cambridge Journal of Economics, Volume 30, Number 5, 15 September 2006 , pp. 797-818(22)

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Abstract:

We discuss and examine empirically a firm-level equivalent of the ancient problem of `tying the King's hands', namely how to avoid managerial intervention that is undertaken to reap private benefits but is harmful to overall value creation, that is, `managerial opportunism'. The link from managerial intervention to firm-level value-creation is moderated by employee motivation. Thus, intervention in the form of managers overruling employees or reneging on delegation may demotivate employees, particularly when the intervention is perceived as being unfair, undertaken for personal gain, etc. We argue that a number of mechanisms, such as managers staking their personal reputation, employees controlling important assets, strong trade unions, etc. may function as constraints on managerial proclivities to intervene, thus reducing the problem of managerial opportunism. We derive four 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.

Keywords: Delegation of discretion; Employee motivation; Firm performance; Managerial intervention

Document Type: Research article

DOI: http://dx.doi.org/10.1093/cje/bei107

Publication date: 2006-09-15

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The Cambridge Journal of Economics, founded in 1977 in the traditions of Marx, Keynes, Kalecki, Joan Robinson and Kaldor, provides a forum for theoretical, applied, policy and methodological research into social and economic issues.