Opportunism

About: Opportunism is a research topic. Over the lifetime, 2030 publications have been published within this topic receiving 97170 citations. The topic is also known as: opportunist.

Governing Top Managers: Board Control, Social Categorization, and Their Unintended Influence on Discretionary Behaviors

Abstract: Manuscript Type: Conceptual Research Question/Issue: This paper seeks to complement agency and stewardship perspectives regarding the governance of top managers by using insights from social categorization theory Research Findings/Insights: This paper looks inside the black box of the control-performance relationship We acknowledge that boards can positively influence organizational functioning by monitoring the top management team However, we also argue that board control contains a hidden cost The model we develop describes how control can highlight the distinction between principals and agents thereby causing the top management team to adopt a biased and less cooperative “us vs them” orientation towards owners and their representatives We contend this results in an increase in negative discretionary behavior and a decrease in positive discretionary behavior, which dampen the positive influence of control on firm performance We also describe techniques for mitigating this unintended outcome of control Theoretical/Academic Implications: Agency and stewardship theories offer alternative views of human nature and provide divergent prescriptions for governance This paper presents social categorization theory as a complementary lens emphasizing a situational and social view of human nature that helps explain top managers' discretionary behaviors that influence firm performance Practitioner/Policy Implications: Ongoing governance scandals are costly illustrations of unchecked managerial opportunism They demonstrate the need for vigilant control A control approach to governance, however, does not consistently improve firm performance This paper offers an explanation It acknowledges that board control is necessary, while arguing that it can have unwanted side effects We describe two tools (individualization and social recategorization) that can be used to ameliorate these effects

How Do German Contracts Do as Much with Fewer Words

Abstract: German business contracts are much shorter than their American counterparts. They also avoid the worst excesses of legalese that American contracts are known for. But they seem to work as well as United States contracts. We seek to understand how German business contracts could do as much with fewer words. Our explanation is predicated on an account of what contracting does. Contracting aims to create a bigger transactional pie in a world where parties' incentives are misaligned and they need to coordinate the production of information, specify future rights, duties, and procedures, and allocate risks. The task of contracting thus has both adversarial and non-adversarial components. The German system permits considerable economics in the adversarial sphere; the economics extend to the non-adversarial sphere as well. The economies take the form of a reduction in transaction costs: transaction documents in Germany are far less custom-tailored to particular parties and their transactions than they are in the United States. Yet parties are not sacrificing much in the way of "getting the deal they want." This is because much custom-tailoring in the U.S. reflects (a) a costly attempt to constrain opportunism using contract language, and (b) a failure to create and accept "good enough" solutions to non-adversarial (and some adversarial) issues parties commonly face. We argue that German contracting does better on both these fronts. It does better at constraining opportunism more cheaply, by cutting short the "arms race" in which U.S. transacting parties and their lawyers too often engage in their negotiation and drafting of contracts. It also does better at creating and using "good enough" standardized solutions to common non-adversarial (and some adversarial) issues. But the German system has its costs. Parties may indeed compromise somewhat on getting, or at least specifying, "exactly the deal they want." And, more importantly, the German system may ultimately be unsustainable: The arms race in customizing contract provisions may be impossible to constrain in the more diffuse transactional community that European integration and globalization are bringing about; with enough customization, the benefits to using and developing standardized provisions diminish greatly.

An empirical analysis of intellectual property rights sharing in software development outsourcing

Abstract: Software development outsourcing (SDO) contracts are plagued with ex post opportunism and underinvestment problems. Property rights theory (PRT) argues that appropriate property rights allocation between vendors and clients can reduce opportunism and incentivize relation-specific investments. We conduct an in-depth content analysis of 171 real SDO contracts and empirically examine how project attributes and contract parties' bargaining power affect the allocation of intellectual property rights (IPR). We find that clients retained more IPR when software development was modularized whereas they shared more IPR with vendors in contracts that incorporated greater use of a vendor's proprietary software. Greater levels of task complexity were associated with more IPR sharing with vendors. We also find that the responsiveness of IPR to project attributes varied across the different types of intellectual assets. For example, vendors were more likely to obtain redeployment rights of know-how if they were contracted for novel software development projects. However, clients were less likely to cede ownership of data and confidential information embedded in software customization projects. We control for a variety of firm and transaction characteristics and the results we obtain here are robust to concerns of endogeneity bias.

The Investor Confidence Game

Abstract: Recent reports of massive accounting frauds at some of the nation's largest and most respected companies have provoked calls from policymakers and business leaders for market reforms to shore up investor confidence. Nevertheless, the phenomenon of investor confidence has received relatively little formal study. Current legal scholarship tends to assume, with little discussion, that investors have "confidence" when they have information that assures them that the incentives provided by the law and by the markets are adequate to constrain corporate insiders and securities professionals from shirking, stealing, and other forms of opportunistic behavior. This "rational expectations" approach also implies that, in the absence of such assurance, investors protect themselves from others' opportunism by refusing to invest in the market in the first place. This article argues that the phenomenon of investor confidence can be understood far better if we assume not that investors have rational expectations, but that they have what economists call "adaptive expectations". Individuals with rational expectations predict others' behavior by focusing on their external incentives and constraints. In contrast, individuals with adaptive expectations predict others' behavior (including possibly the behavior of such an abstract "other" as the stock market) by extrapolating from the past. Adaptive expectations consequently permit trust, meaning a belief that another will behave in a cooperative and trustworthy fashion simply because he or she has behaved trustworthily and cooperatively in the past. The article argues that there is substantial reason to believe that adaptive expectations-based trust is essential to a well-developed public securities market. It reviews experimental studies that shed light on how trust can be developed and how it can be destroyed. Finally, it considers some of the policy implications that flow from an adaptive expectations model of investor confidence. One of the most important is that trust may be subject to "history effects." If an individual or institution has behaved cooperatively in the past, trusting investors tend to assume that that institution or individual will behave cooperatively in the future - even if incentives change so that cooperation is no longer advantageous. Conversely, trust that has been abused tends to disappear, and it can be slow to return even when the problems that led to its abuse have been corrected. This second observation carries pessimistic implications for lawmakers' ability to restore investor confidence quickly through legal reforms after that confidence has been eroded.