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Book cover: Research in the Sociology of Organizations

Research in the Sociology of Organizations

ISSN: 0733-558X
Series editor(s): Professor Michael Lounsbury

Subject Area: Organization Studies

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The misapplication of Mr. Michael Jensen: how agency theory brought down the economy and why it might again


Document Information:
Title:The misapplication of Mr. Michael Jensen: how agency theory brought down the economy and why it might again
Author(s):Frank Dobbin, Jiwook Jung
Volume:30 Editor(s): Michael Lounsbury, Paul M. Hirsch ISBN: 978-0-85724-207-5 eISBN: 978-0-85724-208-2
Citation:Frank Dobbin, Jiwook Jung (2010), The misapplication of Mr. Michael Jensen: how agency theory brought down the economy and why it might again, in Michael Lounsbury, Paul M. Hirsch (ed.) Markets on Trial: The Economic Sociology of the U.S. Financial Crisis: Part B (Research in the Sociology of Organizations, Volume 30), Emerald Group Publishing Limited, pp.29-64
DOI:10.1108/S0733-558X(2010)000030B006 (Permanent URL)
Publisher:Emerald Group Publishing Limited
Article type:Chapter Item
Abstract:Agency theorists diagnosed the economic malaise of the 1970s as the result of executive obsession with corporate stability over profitability. Management swallowed many of the pills agency theorists prescribed to increase entrepreneurialism and risk-taking; stock options, dediversification, debt financing, and outsider board members. Management did not swallow the pills prescribed to moderate risk: executive equity holding and independent boards. Thus, in practice, the remedy heightened corporate risk-taking without imposing constraints. Both recessions of the new millennium can be traced directly to these changes in strategy. To date, regulators have proposed nothing to undo the perverse incentives of the new “shareholder value” system.

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