Essay Example on Managerial discretion as appealing in personal Hunts








Managerial discretion as appealing in personal hunts outside activities during business hours Holmstrom Milgrom 1991 Milgrom Roberts 1992 Agency theory upholds that self interested devious managers given a high level of discretion will apt firm profits Fama Jensen 1983b Jensen Meckling 1976 Williamson 1963 In all three of these situations managerial discretion creates opportunistic behavior negatively influences corporate profits and thus damages owners interests of owners both short and long term Gedajlovic Shapiro 1998 In the short term managers waste firm funds by increasing their non salary income or consuming privileges Jensen Meckling 1976 Williamson 1963 Long term managers pick approaches and that managers pursuit of personal objectives like salary security power status standing and professional excellence divests firms of productivity gains Williamson 1963 Managerial capitalism embraces that managers chase growth over profit maximization because rises in salary power and status appropriate with increases in firm size enhance managers utility function Marris 1964 according to personal requirements regarding firm size or growth over profits Managers who love high levels of discretion have been exposed for example to be more likely to adopt gaining strategies which would eventually increase their reward Wright Kroll Elenkov 2002

Likewise researchers unfolding the concept of agency cost of managerial discretion have revealed managers with a high mark of discretion to be less possible to take recourse to debt in capital structure choices because they cannot follow their personal interests at shareholder expense when free cash flow is used to pay interest Berger Ofek Yermack 1997 Jung Kim Stulz 1996 Stulz 1990 Managerial discretion has not completely been unheeded or viewed in a negative light Upper echelon theory inspecting managerial discretion as the variety of strategic means available to managers for following goals set by stakeholders codes it neutrally Hambrick Finkelstein 1987 The work in upper echelon theory that postulates managerial discretion to be the existing range of strategic actions has established such that scholars have recognized conditions that improve and hinder managerial action In other words managerial Vague assumptions about human behavior upper echelon theory researchers uphold opportunities for their skills and leadership to be replicated in organizational conclusions are greater for managers with high than for managers with low levels of discretion Hambrick Finkelstein 1987

The general opportunities for managers propose a much stronger connotation among managers and organizational outcomes in the high discretion than in the low discretion case The notion of managerial discretion in actions introduced by Hambrick and Finkelstein 1987 hypothesizes it to be a function of 1 the task environment e g product differentiability market growth industry structure demand instability quasi legal constraints and powerful outside forces 2 internal organization e g inertial forces 15 size age strength of culture capital intensity and resource availability and 3 managerial characteristics e g aspiration level commitment and cognitive complexity Research intended at operationalizing the concept of managerial discretion has been thoughtful with industry level conditions the ration most commonly explored being distinction across industries Finkelstein Hambrick 1990 Some researchers nevertheless observed the effect of macro environmental factors such as the national setting affect managerial discretion Crossland Hambrick 2007 Finkelstein and Hambrick s 1990 inspection of whether the association among top management team TMT tenancy and organizational outcome is weakened by managerial discretion for example used industry as a portion of managerial discretion

Grouping industries according to degree of managerial discretion computer industry high discretion chemical industry modest discretion natural gas industry low discretion they found the association between TMT tenure and performance to be superior in the computer industry than in the natural gas industry Hambrick Geletkanycz and Fredrickson 1993 again linking different industries to different discretion levels food and beverage computing equipment and scientific and measuring equipment industries to high discretion public utility natural resource and telecommunications service industries to low discretion originate the association between performance and responsibility to the status quo to be weakened by discretion level Similarly Haleblian and Finkelstein 1993 in their study of whether the relation among team size and CEO supremacy to firm performance is stronger in high or low discretion environments used the computer and natural gas industries as their indicators of high and low discretion correspondingly To better defend their choice of industries and their link to discretion levels Hambrick and Abrahamson tried to create a general measure by enquiring scholars and security analysts to evaluate the level of discretion in each industry Abrahamson Hambrick 1997 Hambrick Abrahamson 1995 Agency theorists claim that risk bearing costs and agency costs differ linearly over the stock dispersal range risk bearing costs are little under isolated ownership and agency costs are low under focused ownership Therefore agency theory upholds that the need to diminish risk bearing costs energies ownership towards common stock corporations with isolated ownership and the need to control agency costs energies ownership to sole proprietorship with focused ownership

The key mechanism for regulating agency costs is aligning managers interests with those of owners Managers may chase personal objectives over those of the owners in the nonappearance of disciplining mechanisms while managerial behavior is contended to profit managers and owners alike in the occurrence of incentive alignment Even though agency theory stresses the role of incentives when investigating the impact of ownership type on managerial behavior these enticements are but one instrument There exist other organizational instruments related with ownership types such as organizational constrictions e g auditing control systems budget restrictions and performance reviews Therefore managerial discretion can be observed as straddling a continuum Where a manager lies on that continuum may be in part a purpose of these other aspects of ownership For example the degree of managerial discretion will be lower in organizations with strict auditing requirements and monetary controls In short dissimilar ownership types will possibly engage different kinds of constraints that affect the level of managerial discretion The stress here is less on whether ownership types are related with greater or lesser agency costs than on the different levels of discretion that these ownership types afford

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