Does digitalization mitigate or intensify the principal-agent conflict in a firm?

Joseph Mc Cahery, Ilya Ivaninskiy*, Irina Ivashkovskaya

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

Abstract

In this article, we analyse the impact of business digitalisation on the principal-agent conflict. While there are several studies of impact of digitalization on corporate governance, the empirical evidence has so far been relatively scarce. We examine the principal-agent conflict from several angles: the number of shareholder-sponsored proposals submitted for the shareholder meetingsб the level of support for management-sponsored proposals and the frequency of proxy contests. As a proxy for the active digitalisation of a firm, we use the blockchain technology that has the potential to fundamentally change the distribution of power within an organisation, potentially mitigating the principal-agent conflict. We analyze a sample of 2813 NYSE, Nasdaq and AMEX-traded firms for the year 2018, during which rapid blockchain adoption was exhibited. Our results suggest that firms active in business digitalisation overall have a lower level of principal-agent conflict. We find that such firms generally have shareholders that are more active, which indicates an environment less prone to the principal-agent conflict. While on average, proposals submitted by the management receive less support during voting, the share of approved proposals does not change for the digitising firms. Proxy contests appear relatively rare among the firms active in digitalisation, however, there is not yet enough data to confirm this.

Original languageEnglish
Pages (from-to)1-31
Number of pages31
JournalJournal of Management and Governance
DOIs
Publication statusE-pub ahead of print - 3 Jul 2021

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