Me or We: The Effects of CEO Organizational Identification on Agency Costs
Academy of Management Journal, Forthcoming
Posted: 21 May 2010
Date Written: May 20, 2010
The corporate governance literature on potential remedies to the agency problem has focused largely on external control mechanisms, especially board independence. We instead consider how an internal, psychological factor – CEO organizational identification – might influence the extent to which firms incur agency costs, e.g., those entailed by the decoupling of CEO pay and perquisites from firm performance. Our theory and findings explain why CEOs with high organizational identification will avoid pursuit of personal gains that can harm the firm and its image. We further show how board independence is less likely to reduce agency costs when CEO organizational identification is high.
Keywords: identification, CEOs, perquisities
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