Towards an Indirect Agency Theory

Amos Gitau Njuguna


Forty years after development of the original agency theory by Jensen and Mecklin, firms have evolved and created convoluted structures in order to subsist the turbulent environment that the business world has become. Consequently, the 21st Century has seen emergence of corporates with webs of direct and indirect interests in form of ownership and other interests. This paper reviews the original agency theory, its consequent developments and the extent to which it applies to firms with indirect ownership. I use the case of collective investment schemes to demonstrate that the agency theory in its initial postulations explicates the agency problems in firms with direct ownership but fails to explain the agency intricacies in firms with indirect ownership and interests. As such I propose an indirect agency theory that provokes thought on the problems, entitlements and reactions of indirect stakeholders to corporate governance lapses.

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ISSN (Paper)2222-1697 ISSN (Online)2222-2847

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