Journal article
Does Referral-Based Hiring Exacerbate Agency Problems?
CY Hung, AM Lillis, A Wu
Accounting Review | AMER ACCOUNTING ASSOC | Published : 2023
Abstract
We investigate circumstances in which referral-based hiring can exacerbate rather than mitigate agency problems. When incentive contracts cannot fully align employees’ incentives with the interests of the firm, employees may behave opportunistically. Referred job candidates likely obtain inside information from existing employees about opportunistic incentive responses, and it is this information that exacerbates agency problems. Our research setting enables us to distinguish between referred and nonreferred employees. It also features a context in which the incentive contract consists of two measures with different properties (efficiency and quality), which allow for opportunistic incentive..
View full abstractGrants
Funding Acknowledgements
We thank Elaine G. Mauldin (editor) and the two anonymous reviewers for their helpful comments. We thank the manufacturing site PCM for providing us with the data to conduct this study. We have benefited from helpful discussions with Margaret Abernethy, Eddy Cardinaels, Yuhchang Hwang, Raffi Indjejikian, Chris Ittner, Jeroen Suijs, and Laurence van Lent. For valuable comments, we also thank seminar participants at The Australian National University, Bocconi University, and KU Leuven. Chung-Yu Hung appreciates financial support from the Faculty of Business and Economics at The University of Melbourne. Anne Wu is grateful for the research award by the E. Sun Bank in Taiwan.