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The New Form Agency Problem: Cooperation and Circular Agency

Author

Listed:
  • Chen Chun-Hung

    (Department of Accounting, Chaoyang University of Technology, 168, Jifeng E. Rd., Wufeng District, Taichung, 413310, Taiwan)

  • Chen Kuan-Wei

    (Doctoral Program in Design, College of Design, National Taipei University of Technology, Taipei, Taiwan)

  • Chen Yu-Fan

    (Institute of Biomedical Informatics, National Yang Ming Chiao Tung University, Hsinchu, Taiwan)

  • Lin Chia-Yin

    (Department of Accounting, Chaoyang University of Technology, Taichung, Taiwan)

Abstract

This study explores cooperation in the circular agency problem. In circular agency, an agent has weak power in the face of its principal. This research explores a cooperation mechanism in which three participants simultaneously have the identity of principal and agent, in order to illuminate the power struggle between the board of directors, the external shareholder, and the manager of a company. We use the equilibrium results to explain the phenomenon of cooperation between members of the enterprise in practice. Our results have implications for firm governance.

Suggested Citation

  • Chen Chun-Hung & Chen Kuan-Wei & Chen Yu-Fan & Lin Chia-Yin, 2024. "The New Form Agency Problem: Cooperation and Circular Agency," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 24(1), pages 97-116, January.
    • Handle: RePEc:bpj:bejeap:v:24:y:2024:i:1:p:97-116:n:8
    DOI: 10.1515/bejeap-2022-0188
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    References listed on IDEAS

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    1. Maskin, Eric & Tirole, Jean, 1990. "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values," Econometrica, Econometric Society, vol. 58(2), pages 379-409, March.
    2. Oh, Frederick Dongchuhl & Shin, Sean Seunghun, 2020. "Does product market competition affect corporate governance? Evidence from corporate takeovers," Journal of Empirical Finance, Elsevier, vol. 59(C), pages 68-87.
    3. Kuang, Yu Flora & Lee, Gladys, 2017. "Corporate fraud and external social connectedness of independent directors," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 401-427.
    4. David E. M. Sappington, 1991. "Incentives in Principal-Agent Relationships," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 45-66, Spring.
    5. Frederick Dongchuhl Oh & Kyung Suh Park, 2016. "Corporate governance structure and product market competition," Applied Economics, Taylor & Francis Journals, vol. 48(14), pages 1281-1292, March.
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    More about this item

    Keywords

    agency problem; circular agency; cooperation;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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