TY - JOUR
T1 - The schizophrenic board secretary
T2 - An embedded agent between multiple stakeholders and financial misconduct
AU - Liu, Bin
AU - Ahlstrom, David
AU - Zhang, Yutong
N1 - Publisher Copyright:
© 2024 Elsevier Ltd
PY - 2024/1/1
Y1 - 2024/1/1
N2 - While agency theory has long informed both research and practice in emphasizing good corporate governance in preventing financial misconduct, monitoring bodies do not always function so well, especially in transition economies. By integrating the stakeholder-agency perspective with prospect theory, this study provides a new explanation of such dysfunction by introducing an embedded agent concept that manifests a “schizophrenic” status of agents which creates a need to satisfy multiple stakeholders and their conflicting interests. Drawing on a sample of small-to-medium-sized enterprises (SMEs) listed on the Chinese National Equities and Exchange and Quotations system from 2014 to 2017, it is shown that having a board secretary did not help reduce financial misconduct as the government had hoped, because of an embedded agent problem. However, their dysfunctional status would largely disappear, and they would perform their monitoring responsibilities if given higher equity shares and stricter subnational regulations – two key contingencies that better align embedded agents’ interests with one group of stakeholders. Overall, this study contributes to the corporate governance literature by introducing the embedded agent concept and its theoretical boundaries, along with a focus on transition economies.
AB - While agency theory has long informed both research and practice in emphasizing good corporate governance in preventing financial misconduct, monitoring bodies do not always function so well, especially in transition economies. By integrating the stakeholder-agency perspective with prospect theory, this study provides a new explanation of such dysfunction by introducing an embedded agent concept that manifests a “schizophrenic” status of agents which creates a need to satisfy multiple stakeholders and their conflicting interests. Drawing on a sample of small-to-medium-sized enterprises (SMEs) listed on the Chinese National Equities and Exchange and Quotations system from 2014 to 2017, it is shown that having a board secretary did not help reduce financial misconduct as the government had hoped, because of an embedded agent problem. However, their dysfunctional status would largely disappear, and they would perform their monitoring responsibilities if given higher equity shares and stricter subnational regulations – two key contingencies that better align embedded agents’ interests with one group of stakeholders. Overall, this study contributes to the corporate governance literature by introducing the embedded agent concept and its theoretical boundaries, along with a focus on transition economies.
KW - Embedded agent
KW - Financial misconduct
KW - Prospect theory
KW - Small-to-medium-sized enterprises
KW - Stakeholder-agency theory
KW - Transition economy
UR - http://www.scopus.com/inward/record.url?scp=85185280859&partnerID=8YFLogxK
U2 - 10.1016/j.bar.2024.101323
DO - 10.1016/j.bar.2024.101323
M3 - Article
SN - 0890-8389
JO - British Accounting Review
JF - British Accounting Review
M1 - 101323
ER -