Journal article

The Interactive Effect of Monitoring and Incentive Alignment on Agency Costs

GP Martin, Robert M Wiseman, Luis R Gomez-Mejia

Journal of Management | SAGE Publications | Published : 2019

Abstract

The effectiveness of monitoring and incentive alignment as mechanisms for controlling agency costs have been explored separately and in combination, with monitoring substituting for weaknesses in incentive alignment and vice versa; this equates to positive substitution when describing how monitoring and incentive alignment interact to influence shareholder agency costs. We draw upon behavioral agency theory and findings from finance research to offer further theoretical insight into how these mechanisms interact to influence agency costs. Our results suggest that CEO earnings management aimed at preserving their equity wealth (an incentive alignment mechanism) is accentuated by higher levels..

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University of Melbourne Researchers