Hi,I have attached the assignmnet requirement outline below.
- As they have mentioned in the assignment criteria I found 4 articles referring the Swinburne Library business sources which contains under the ABDC list.
- The 4 articles which i chose are based on the; Agency and Contingency Theory.
- 2 articles for each theory.
- Word Limit: 2000
- The due date: 27th September, but expect it to be completed by 25th September.
I have also attached the 4 articles below as we should relate those articles to the given requirement.
Could i please know what the best price you could given in??
Thank You.
External Corporate Governance and Financial Fraud: Cognitive Evaluation Theory Insights on Agency Theory Prescriptions: Strategic Management Journal Strat. Mgmt. J., 38: 1268–1286 (2017) Published online EarlyView 27 October 2016 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2560 Received 18 September 2015; Final revision received 20 April 2016 EXTERNAL CORPORATE GOVERNANCE AND FINANCIAL FRAUD: COGNITIVE EVALUATION THEORY INSIGHTS ON AGENCY THEORY PRESCRIPTIONS WEI SHI,1* BRIAN L. CONNELLY,2 and ROBERT E. HOSKISSON3 1 Kelley School of Business, Indiana University, Indianapolis, Indiana, U.S.A. 2 Raymond J. Harbert College of Business, Auburn University, Auburn, Alabama, U.S.A. 3 Jesse H. Jones Graduate School of Business, Rice University, Houston, Texas, U.S.A. Research summary: Agency theory suggests that external governance mechanisms (e.g., activist owners, the market for corporate control, securities analysts) can deter managers from acting opportunistically. Using cognitive evaluation theory, we argue that powerful expectations imposed by external governance can impinge on top managers’ feelings of autonomy and crowd out their intrinsic motivation, potentially leading to financial fraud. Our findings indicate that external pressure from activist owners, the market for corporate control, and securities analysts increases managers’ likelihood of financial fraud. Our study considers external governance from a top manager’s perspective and questions one of agency theory’s foundational tenets: that external pressure imposed on managers reduces the potential for moral hazard. Managerial summary: Many of us are familiar with stories about top managers “cooking the books” in one way or another. As a result, companies and regulatory bodies often implement strict controls to try to prevent financial fraud. However, cognitive evaluation theory describes how those external controls could actually have the opposite of their intended effect because they rob managers of their intrinsic motivation for behaving appropriately. We find this to be the case. When top managers face more stringent external control mechanisms, in the form of activist shareholders, the threat of a takeover, or zealous securities analysts, they are actually more likely to engage in financial misbehavior. Copyright © 2016 John Wiley & Sons, Ltd. INTRODUCTION Strategy scholars and policymakers have devoted renewed attention in recent years to “external” mechanisms of corporate governance, such as the monitoring and control by stakeholders who are not inside the organization. For example, a recent review of this literature seeks to “bring external Keywords: External governance mechanism; Financial fraud; Ownership; Takeover defenses; Securities analysts *Correspondence to: Wei Shi. 801 W. Michigan St, BS 4020, Kelley School of Business-Indianapolis, Indianapolis, IN 46202, phone: 317-274-0939. E-mail: ws7@iu.edu Copyright © 2016 John Wiley & Sons, Ltd. corporate governance into the corporate governance puzzle” more fully (Aguilera et al., 2015). Gov- ernance research has yielded important insights about these external governance mechanisms (Cof- fee, 2006), but few have considered their potentially adverse ramifications. Toward this end, we incorpo- rate a behavioral perspective of managers into our understanding of external governance to highlight how the expectations imposed by external gover- nance could impose on managers’ motivation, and we thus uncover the potential harm such governance mechanisms might introduce. Recent developments in agency theory research relax the theory’s assumption of purely economic External Corporate Governance and Financial Fraud 1269 agents (Wiseman and Gomez-Mejia, 1998). For example, behavioral agency theory reevaluates predictions in view of more realistic assumptions about agent behavior, with particular emphasis on internal governance (Pepper and Gore, 2015). Researchers have incorporated prospect theory (Martin, Gomez-Mejia, and Wiseman, 2013) and equity theory (Pepper, Gosling, and Gore, 2015) into agency theory predictions about how compen- sation structures influence managerial behavior. We build on the notion of overlaying cognitive biases onto agency theory prescriptions and extend this approach to external governance mechanisms. In particular, we inquire into how agents feel about external monitoring and control and what this means for their intrinsic motivation to behave ethically. Cognitive evaluation theory (Boal and Cum- mings, 1981; Deci, 1971, 1975) is particularly informative in this regard because it explains how external controls can actually be counterproductive. The fundamental tenet of cognitive evaluation the- ory is that intrinsically motivated behavior is a func- tion of a person’s need to feel self-determining in his or her decisions (Phillips and Lord, 1981). The theory asserts that external monitoring and controls “crowd out” an individual’s motivation to behave in ways the controls are designed to ensure (Frey and Jegen, 2001). In our context, this would sug- gest that pressure from external governance lessens managers’ feelings of autonomy, thereby decreas- ing their intrinsic motivation to behave in ways that the governance mechanisms are supposed to safe- guard against (Deci and Ryan, 2000). In this study, we ask whether external governance weakens man- agers’ intrinsic motivation to act in the interest of shareholders and behave appropriately in the con- text of financial reporting. Managerial financial fraud (e.g., inappropriately booking revenue, improperly valuing assets, not disclosing material information) is a phenomenon that is drawing extensive industry and regula- tory attention (Eaglesham and Rapoport, 2015). In fact, in 2014 alone, the Securities and Exchange Commission (SEC) announced 93 investigations against publicly traded companies for alleged finan- cial misconduct. As a result, governance scholars are acutely interested in how to predict and prevent the occurrence of financial fraud. Agency theory suggests that internal governance reduces informa- tion asymmetry between those inside and outside the firm, and consequently, decreases the likelihood of fraud (Dalton et al., 2007). We, however, sug- gest and find that pressure from external governance may impose hidden agency costs as managers shift their locus of causality outward and lose their intrin- sic motivation to ethically report their respective firm’s performance, thus resulting in a greater like- lihood of financial fraud. Our study introduces a key behavioral consider- ation into agency theory’s predictions about exter- nal governance, uncovering some counterintuitive relationships. For instance, we found that the “high- est quality” principals (Higgins and Gulati, 2006) are positively associated with the likelihood of fraud. Conversely, organizational provisions that many thought would lead to managerial entrench- ment, such as poison pills and golden parachutes (Bebchuk, Cohen, and Ferrell, 2009), actually bear a negative association with the likelihood of finan- cial fraud. THEORETICAL DEVELOPMENT Agency theory Recent agency theory formulations focus on how agents behave in boundedly rational ways (Wise- man and Gomez-Mejia, 1998). The behavioral agency model (BAM) was developed largely to overcome criticisms regarding static assumptions about executives’ risk preferences (Wiseman and Gomez-Mejia, 1998). Empirical research on behav- ioral agency theory to date has focused mainly on behavioral risk propensities and internal gov- ernance using prospect theory arguments (Chris- man and Patel, 2012). For instance, this line of study re-examines compensation risk, highlight- ing the importance of individual problem framing to explain how risk influences executive behavior (Larraza-Kintana et al., 2007; Martin et al., 2013). Following this model, we extend agency the- ory by applying behavioral considerations to three forms of external governance (we define external as being those forms of governance that operate without full access to the firm’s inside informa- tion). Within agency theory, one form of external governance is a firm’s owners, which serve as a market-based governance mechanism (Baysinger, Kosnik, and Turk, 1991). From an agency per- spective, managers are also subject to the market for corporate control, which researchers sometimes describe as a governance mechanism of last resort Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 1268–1286 (2017) DOI: 10.1002/smj 1270 W. Shi, B. L. Connelly, and R. E. Hoskisson (Jensen and Ruback, 1983). More recently, agency theory scholars have begun to investigate rating agencies (i.e., securities analysts) as another form of external governance (Chen, Harford, and Lin, 2015; Wiersema and Zhang, 2011). There are other exter- nal forces that act on firms beyond the three men- tioned here (e.g., legal institutions, social activists), but we limit our investigation to these three because they are the most central and influential forms of external governance within the agency framework. We also add to agency theory by considering a key cognitive bias that challenges the theory’s eco- nomic assumptions. Specifically, we theorize about how to incorporate trade-offs between intrinsic and extrinsic motivation into agency theory models (c.f. Boivie, Graffin, and Pollock, 2012; Pepper and Gore, 2015). We use cognitive evaluation theory (Deci and Ryan, 1985) to explain how external gov- ernance mechanisms introduce high expectations on managers who serve as an extrinsic motivational force, which could crowd out intrinsic motivation, so that the combined effect is actually the oppo- site of what was intended with respect to preventing fraudulent behavior. Cognitive evaluation theory The concepts underlying cognitive evaluation the- ory emerged from the study of how external pres- sure affects internal motivation to do what is right. Some described this in terms of a “crowding-out effect,” wherein excessive external rewards and punishments can subvert intrinsic motivation to behave ethically (Bertelli, 2006; Georgellis, Iossa, and Tabvuma, 2011). Originators of the theory pred- icated their ideas on the assumption that individuals have innate needs for autonomy and competence (Ryan and Deci, 2000). Autonomy concerns “the experience of acting with a sense of choice, volition and self-determination” and competence is about “the belief that one has the ability to influence important outcomes” (Stone, Deci, and Ryan, 2009: 77). The level of autonomy and competence that individuals perceive they have is a powerful deter- minant of their intrinsic motivation (Deci and Ryan, 2012; Gagne and Deci, 2005). In the cognitive evaluation theory framework, when external mechanisms of control impinge on an individual’s sense of autonomy and control, it could thereby decrease his or her internal motiva- tion to behave in ways that the external controls were supposed to ensure (Osterloh, Frost, and Frey, 2002). Consistent with these ideas, a number of studies in management support the notion that exter- nal consequences could potentially reduce individu- als’ motivation to behave in ways that are consistent with their responsibilities to the firm (e.g., Barkema, 1995; Jacquart and Armstrong, 2013). For example, Osterloh and Frey (2000) argued that high lev- els of extrinsic motivators can curtail employees’ intrinsic motivation to engage in organizational cit- izenship behavior, thus hindering them from trans- ferring tacit knowledge. Similarly, Sundaramurthy and Lewis (2003) contended that top managers oftentimes perceive external controls as coercive, reducing their desire to put forth effort. Our study builds on these ideas to develop specific hypotheses about how some of the most commonly investigated mechanisms of external corporate governance affect the likelihood of managerial financial fraud. HYPOTHESES Financial fraud Financial fraud occurs when managers take actions that deceive investors or other key stakeholders (Gande and Lewis, 2009; Shi, Connelly, and Sanders, 2016).