The predictive power of agency theory in a multipolar world

Abstract

We use comparative institutional theory to explore the predictive power of agency theory against the background of the emerging multipolar world characterized by an increasing distance between institutional systems. Originally developed in the liberal market economy context, agency theory presents managerial ownership and board independence as critical managerial practices to mitigate agency problems. Our analysis at the level of institutional systems of 26,945 firms across 39 countries over a period of 14 years (2009–2022) shows that the predictive power of agency theory is reduced when firms operate in institutional systems at a larger distance from the liberal market economy model. These results are corroborated using propensity score matching methods and cross-validated with an alternative database. We integrate institutional distance research with the theory on comparative institutional systems that have so far mostly operated in silos. The broader implication of our analysis is that the emergence of the multipolar world affects the universal applicability of agency theory and makes it more context-specific. The fundamental idea that the predictive power of our theories is affected by the current global economic developments is an aspect that has so far been overlooked in the de-globalization discussion. We discuss implications for international business scholarship.