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Organization Theory: an Assessment and Review

Agency Theory: An Examination and Review Author(s): Kathleen M. Eisenhardt Source: The Academy of Management Review, Vol. 18, No . 1 (Jan., 1989), pp. 57-74 Published simply by: Academy of Management Stable URL: http://www.jstor.org/stable/258191 Accessed: 14/10/2010 10: 43 Your make use of the JSTOR archive shows your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Conditions of Use delivers, in part, that unless you have developed prior permission, you may not down load an entire issue of a record or multiple copies of articles, and you will probably use content in the JSTOR archive simply for your personal, noncommercial use. You should contact the publisher relating to any further make use of this job. Publisher info may be acquired at http://www.jstor.org/action/showPublisher?publisherCode=aom. Each copy of any part of a JSTOR transmitting must develop the same copyright laws notice that looks on the display screen or published page of such tranny. JSTOR is known as a not-for-profit support that helps college students, researchers, and students discover, use, and build upon an array of content within a trusted digital archive. All of us use i . t and equipment to increase productivity and aid new types of scholarship. To learn more about JSTOR, please get in touch with [email protected] org.

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? Schools of Supervision Review, 1989, Vol. 18, No . one particular, 57-74.

Company

Theory: and

An

Assessment

Review

KATHLEEN EISENHARDT Meters. Stanford University

Agency theory is an important, but controversial, theory. This daily news reviews firm theory, the contributions to organization theory, and the extant empirical operate and develops testable propositions. The conclusions are that agency theory (a) provides unique insight into information systems, outcome doubt, incentives, and risk and (b) is usually an empirically valid perspective, particularly when along with complementary perspectives. The principal recommendation is to combine an agency perspective in research of the many complications having a supportive structure. Eventually Deng Xiaoping decided to consider his son to visit Mao. " Contact me granduncle, " Mao offered warmly. " Wow, I absolutely couldn't do that, Chairman Mao, " the awe-struck kid replied. " Why don't you provide him an apple? " suggested Deng. No faster had Mao done so than the boy happily chirped, " Oh thanks a lot, Granduncle. " " You observe, " stated Deng, " what offers can achieve. " (" Capitalism, " 1984, p. 62) Agency theory has been utilized by scholars in accounting (e. g., Demski & Feltham, 1978), economics (e. g., Spence & Zeckhauser, 1971), finance (e. g., Fama, 1980), advertising (e. g., Basu, Lal, Srinivasan, & Staelin, 1985), political research (e. g., Mitnick, 1986), organizational tendencies (e. g., Eisenhardt, 1985, 1988; Kosnik, 1987), and sociology (e. g., Eccles, 1985; White-colored, 1985). Yet, it is nonetheless surrounded by controversy. Its advocates argue that a revolution is at palm and that " the foundation to get a powerful theory of agencies is being placed into place" (Jensen, 1983, s. 324). Its detractors call it up trivial, dehumanizing, and even " dangerous" (Perrow, 1986, l. 235). Which is it: grand theory or great sham? The 57 purposes on this paper should be describe firm theory and indicate ways organizational analysts can use the insights. The paper can be organized about four concerns that are germane to organizational research. The first demands the deceptively simple issue, What is organization theory? Often , the specialized style, math, and tautological reasoning of the agency books can unknown the theory. Moreover, the organization literature is definitely split into two camps (Jensen, 1983), ultimately causing differences in presentation. For example , Barney and Ouchi (1986) contended that company theory stresses how...

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Kathleen M. Eisenhardt (Ph. M., Stanford University) is Helper Professor by Stanford University. Correspondence can be sent to her at the Section of Industrial Engineering and Architectural Management, 346 Terman Building, Stanford University or college, Stanford, CA 94305. The writer thanks Paul Adler, Michele Bolton, Philip Bromiley, John Hodder, William Ouchi, Gerald Salancik, Kaye Schoonhoven, and Robert Sutton for their remarks and suggestions.

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