IDEAS home Printed from https://ideas.repec.org/a/ids/ijbisy/v5y2010i3p248-267.html
   My bibliography  Save this article

Agency theory and the financial crisis from a strategic perspective

Author

Listed:
  • Alan D. Smith

Abstract

The financial credit crash of 2007 and 2008, based on various explanations of debt derivatives and housing bubbles that caused many financial institutions to lend money to those who could not repay, has its foundations in agency theory and faulty business strategy. Agency theory is the conflict of interest that may arise between the agent (the Chief Executive Officer or CEO or other managers) and the principals (shareholders). This conflict can cause the firm – and ultimately, the shareholders – to lose money. In the eyes of the shareholders, the goal of every CEO should be to maximise shareholder wealth. Agency theory comes into play when the CEO does not act in the best interest of the shareholders. Investment banks are now trying to recoup funds from homeowners, only to find out that they cannot afford the payments; they are then stuck with a foreclosed home and have to try to sell it in an economy where house values have dropped in the last year. Examples from the mortgage, financial and automotive industries are cited to illustrate certain points associated with agency theory-based problems.

Suggested Citation

  • Alan D. Smith, 2010. "Agency theory and the financial crisis from a strategic perspective," International Journal of Business Information Systems, Inderscience Enterprises Ltd, vol. 5(3), pages 248-267.
    • Handle: RePEc:ids:ijbisy:v:5:y:2010:i:3:p:248-267
    as

    Download full text from publisher

    File URL: http://www.inderscience.com/link.php?id=31929
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ids:ijbisy:v:5:y:2010:i:3:p:248-267. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sarah Parker (email available below). General contact details of provider: http://www.inderscience.com/browse/index.php?journalID=172 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.