Mediating Effects Of Board Processes Tasks -Myassignmenthelp.Com

Question: Discuss About The Mediating Effects Of Board Processes Tasks? Answer: Introduction Accounting theories are continuously being modified and developed in order to improve the accounting policies that have been used by the organizations all over the world. This means that the importance of accounting theories have grown in the recent times. The firms adopt and implement the accounting theories depending on the nature of business and other related criteria (Battiston, 2016). This particular study aims to provide an overview into the implications of accounting theories (agency theory, institutional theory, stakeholder theory, legitimacy theory, debt-covenant theories) to organizations. The particular journal article that has been chosen for the purpose of reviewing and analyzing the implications of the agency theory is the Agency Theory and Bounded Self-Interest by Douglas A. Bosse and Robert A. Phillips. The journal article allegedly suggests that the agency theory invariably draws attention to the behavior of certain CEOs and boards that in totality lead to the creation of losses for the society. This particular study aims to provide an overview into the implications of agency theory in regards to how the adoption of the particular theory affects the other entities in the related society. Agency theory the selected journal review The agency theory as mentioned in the journal is one of the most dominant theories in the context of an economic organization and management. The problem that this particular theory aims to resolve is that the theory explains the agency problem that arises whenever a single party, who is the principal, employs another party, who is the agent for the purpose of creating value. The particular problem that arises when such a situation occurs is that the particular interests of the principal and the agents become different which ultimately lead to imperfect information to the principal about the contribution by the agent. This in turn leads to certain costs, which are popularly known as agency costs which have to be ultimately borne by the society (Bauhr Grimes, 2014). The agency theory has been formulated on the basis of certain assumptions which are as follows: All actors that are involved in this theory are in all probabilities narrowly sel-interested All actors are rational in a bounded way The agents are more exposed to risk than the principals These assumptions suggest that the action of aligning the stock options with the payments of the CEOs of the organizations will invariably result in these chief executives working more efficiently which will ultimately elevate the performance of the firm. However, there have been certain experts that suggest that this practice of aligning the stock options with the pay of the CEOs leads to bigger losses incurred by the particular firms in comparison for the gains that have been expected from such actions (Burgers Covin, 2016). The journal article that has been examines the implications of the agency theory by the application of the bounded self-interest. Self-interested actors who are bounded aim to increase their self-interest up to the point where the fairness standards are not violated. The reported journal article that has been selected for the purpose of evaluation in this study list three plausible problems that exist in the agency theory (Bauhr Grimes, 2014). Firstly, the CEOs with the perspective that the Board treats them better than their own expectations will automatically work in an improved manner, which will lead to improvement in the performance of the particular firm. Therefore, as it is evident, this will lead to the incurrence of agency benefits. The authors of the article further suggests that the experts the observing the implication of the agency theory across a wide range of organizations have suggested that the employees or other entities work with redoubled zeal when they discover the fact that the treatment that they receive is much more than their estimations (Bauhr Grimes, 2014). Secondly, the perception by the agents that are not being treated fairly may lead to the generation of the agency costs that are much more than the amount estimated by this particular theory. This is because except the narrowly self-interested executives, the particular executives who are self interested in a bounded way will, in all probabilities, incur additional costs in order to re-establish what is right in the organization. Thus, as it has been stated by many experts, the agency theory in the pursuit of resolving the agency problems have resulted in aggravating the same (Ho Bodoff, 2014). Thirdly, the major contribution by the agency theory is that it readily takes into consideration that the executives of a particular organization are, in all probabilities, narrowly self-interested. A CEO who is self-interested in a bounded way will be a better example for the society than the CEO who is narrowly self-interested. This means that the CEO of an organization raising the issue of unfair treatment of its agents will enhance the social norms of justice thus, contributing to the society in a positive way. The authors of the journal further state the extent by which the expectations of justice and fairness are realized and accepted by the CEOs will have a similar ripple effect through the society, which is a positive mechanism. Thus, the welfare of the agents can be achieved by the application of the agency theory when it does not readily assume that the executives of an organization are by default, narrowly self-interested in nature (Pepper Gore, 2015). The authors of the journal have tested the theory against the backdrop of a corporate governance phenomenon, which have involved the board of directors acting on the behalf of the firms. This means that the boards of directors act as the principals while the CEOs act as the agents who have been hired to increase the value of the firms by resulting in the efficient management of the firms. Furthermore, it has been suggested by the different experts that the theory needs further refinement for providing an improved explanation of the factor that how the actions of the principals affect aggravate or mitigate the agency problems (Cicmil, 2017). A particular solution to the agency problem that is recommended by the agency theory is that the alignment of the interests of the organization with that of the CEO by facilitating the providence to the CEOs to hold equity or buy equity in the firm. This is because the CEO of an organization who is also the shareholder of the same organization will be doubly motivated to improve the performance of the organization as his earnings are directly linked with the organization incurring increased revenues (Zattoni, Gnan Huse, 2015). However, there have been certain studies that claim that the particular practice of making the CEOs hold stock or compensation of the CEOs with the help of the stock options can at times aggravate the agency problem rather than mitigating it. Some experts suggest that these practices invariably leads to the fraud related to securities within the organization. Next, the other effective tool that is proposed by the theory for minimizing the agency costs incurred by an organization is monitoring. It is natural and inn accordance to the hierarchy of authority inside an organization that the action of a CEO will be evaluated and monitored by the Board of directors. The degree of efficiency of this particular process of monitoring depends on the independence of the board members. In terms of the composition of the board of directors of a particular firm, the agency theory suggests that the efficiency of the actions carried out by the board members will increase when the majority of the members of the board neither are officers of the particular organization, nor have any previous link with the organization (Zattoni, Gnan Huse, 2015). The most contrasting theory to the agency theory is the stewardship theory. This theory is used for counteracting the agency problems by offering the alternatives to agency. The stewardship theory can be explained by the situation in which the managers of an organizations do not need the alignment of their individual goals with the organizational goals but the manager himself can act as the steward for aligning his motive with the objectives of the organizations. Thus, it can be deduced from the discussion that the agency theory in spite of being the most dominant theory in terms of economic organizations comes with its own limitations and drawbacks. The particular assumption by the theorists that the principals or the executives of a particular organization will be narrowly self-interested has strengthened the theory. However, there are certain areas that have affected the positive changes that the agency theory could bring about in terms of minimization of the agency costs and othe r related issues (Kleven, Kreiner Saez, 2016). The particular recommendations suggested by the theory for minimizing the agency problem like monitoring the behavior of the agents by the board of directors, establishment of the proper remuneration system for the purpose of rewarding the deserving agents and controlling the market have been efficient in achieving the desired outcome. However, there have been certain studies that suggest that the exact practices listed down by the agency theory lead to the aggravation of the agency problem that it aims to mitigate (Kozlenkova, Samaha Palmatier, 2014). Implications of the Agency theory There are certain implications of the agency theory (Kozlenkova, Samaha Palmatier, 2014). The implications of the adoption of the agency theory can be listed down as follows: The alignment of the managerial interests with the shareholders might appear at the initial stages, to be effective and meaningful. However, the utilization of the outcome based incentive packages and a board of directors that consist of majority of the shareholders of the organization may lead to an inflated level of risk. The different studies suggest that the different solutions provided by the theory for resolving the issue of agency problem like smaller board sizes and remuneration associated with options or stocks have been found to result in an increased amount risk that has been undertaken by the firms adopting the agency theory. Financial education along with the experience related to work does affect the risk taking in a positive manner The board of directors who are financially literate end up adopting the agency theory which ultimately lead to the shareholder primacy There have been studies that support this particular theory and believe that the agency theory can lead to the development of a conceptual framework which can be utilized as the foundation of management accounting However, there are certain reasons for the agency theory being the most dominant theory in case of economic organization. This is because the adoption of the agency theory facilitates the effective dealing of the risks that exist between the principal and the agent. However, any kind of favoritism towards the agent leads to the entire burden of risk on the principal The agency theory also results in the effective dealing of the numerous situations that involves a principal and an agent. For instance, a portfolio manager is an agent to his client who acts as the principal Thus, the implication of the agency theory has both positive and negative effects. However, the firms deriving the efficiency levels by adopting this accounting theory cannot be denied by any means Conclusion Thus, as it can be concluded from the preceding paragraphs, the framework that can be developed by following the agency theory has a high degree of relevance in terms of studying the behavior by the different entities in the organization. The agency is particularly related to the human resource that is utilized within the organization. Therefore, it is the primary duty of the human resource department personnel to identify any kind of agency tension within the organization at the initial level. One of the major consideration that should be realized by the organizations is that the recruitment of unproductive staff may aggravate the agency problem thus, resulting in increased agency costs. 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