Taking stock of the principal-principal agency perspective: A review and the way ahead

Abstract

Traditional agency theory (principal-agent conflict) has been a widely-accepted theoretical perspective for understanding corporate governance practices in developed economies. Institutions in these economies are characterized by effective contract enforcement, disperse ownership, separation of ownership, and control and protection of minority shareholders’ rights. However, the principal-agent relationship, alone, may not be appropriate for analyzing corporate governance in emerging-economy institutional contexts, in which these institutional characteristics are often absent, weak, or poorly implemented. Scholars characterize corporate governance in emerging economies as having a conflict of interest between controlling and minority shareholders, known as the '‘principal-principal agency model’'. This relatively new sub-field has attracted the attention of scholars across disciplines including finance, economics, and strategy. The present chapter attempts to synthesize and review conceptual and empirical developments regarding principal-principal conflicts, and suggests possible directions for future studies.