Agency Theory, Institutional Sensitivity, and Inductive Reasoning: Towards a Legal Perspective

17 Pages Posted: 17 Dec 2011

See all articles by Loizos Heracleous

Loizos Heracleous

Warwick Business School

Luh Luh Lan

National University of Singapore (NUS) - Faculty of Law; National University of Singapore - Department of Strategy & Policy; European Corporate Governance Institute (ECGI)

Date Written: January 2012

Abstract

Making agency theory institutionally sensitive is a reasonable suggestion, as far as normal science stands. However, we argue that such a move has already been taking place, that it cannot address important problems with agency theory, and that the time is ripe for a critical re‐examination of this theory. We suggest that inductive studies can not only be more sensitive to institutional features than deductive studies, but they can also offer deeper understanding of governance practices in specific contexts, as well as the potential for analytical or moderatum generalizations. Drawing from legal theory, we offer an alternative conception of the principal, and of the role and status of the board of directors. We contend that this reformulated agency theory has a greater potential of being institutionally sensitive because it recognizes various stakeholders as team members, rather than just adding specific institutional features as variables to the dominant conception of agency theory.

Keywords: abduction, agency theory, board of directors, induction, legal perspective

Suggested Citation

Heracleous, Loizos and Lan, Luh Luh, Agency Theory, Institutional Sensitivity, and Inductive Reasoning: Towards a Legal Perspective (January 2012). Journal of Management Studies, Vol. 49, Issue 1, pp. 223-239, 2012, Available at SSRN: https://ssrn.com/abstract=1973844 or http://dx.doi.org/10.1111/j.1467-6486.2011.01009.x

Loizos Heracleous (Contact Author)

Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

Luh Luh Lan

National University of Singapore (NUS) - Faculty of Law ( email )

469G Bukit Timah Road
Eu Tong Sen Building
Singapore, 259776
Singapore

National University of Singapore - Department of Strategy & Policy ( email )

15 Kent Ridge Drive, Singapore
Singapore 119245
Singapore

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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