The Misapplication of Mr. Michael Jensen: How Agency Theory Brought Down the Economy and Why it Might Again

Dobbin, Frank, and Jiwook Jung. 2010. “The Misapplication of Mr. Michael Jensen: How Agency Theory Brought Down the Economy and Why it Might Again”. Markets on Trial: The Economic Sociology of the U.S. Financial Crisis (Research in the Sociology of Organizations) 30B, pp. 29-64

30 Pages Posted: 20 Jun 2013

See all articles by Frank Dobbin

Frank Dobbin

Harvard University - Department of Sociology

Jiwook Jung

Harvard University

Date Written: 2010

Abstract

Agency theorists diagnosed the economic malaise of the 1970s as the result of executive obsession with corporate stability over profitability. Management swallowed many of the pills agency theorists prescribed to increase entrepreneurialism and risk-taking; stock options, diversification, debt financing, and outsider board members. Management did not swallow the pills prescribed to moderate risk: executive equity holding and independent boards. Thus in practice, the remedy heightened corporate risk-taking without imposing constraints. Both recessions of the new millennium can be traced directly to these changes in strategy. To date, regulators have proposed nothing to undo the perverse incentives of the new "shareholder value" system.

Suggested Citation

Dobbin, Frank and Jung, Jiwook, The Misapplication of Mr. Michael Jensen: How Agency Theory Brought Down the Economy and Why it Might Again (2010). Dobbin, Frank, and Jiwook Jung. 2010. “The Misapplication of Mr. Michael Jensen: How Agency Theory Brought Down the Economy and Why it Might Again”. Markets on Trial: The Economic Sociology of the U.S. Financial Crisis (Research in the Sociology of Organizations) 30B, pp. 29-64. Available at SSRN: https://ssrn.com/abstract=2281996

Frank Dobbin (Contact Author)

Harvard University - Department of Sociology ( email )

33 Kirkland Street
Cambridge, MA 02138
United States

Jiwook Jung

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
143
rank
199,787
Abstract Views
706
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information