Strategic Alliance and Employment Contract Designs: The Effect of Industry Life Cycles

Global Economics and Management Review, April 2010

AAA 2007 Management Accounting Section

25 Pages Posted: 6 Aug 2007 Last revised: 7 Jun 2017

See all articles by Sebahattin Demirkan

Sebahattin Demirkan

George Mason University - Department of Accounting

Irem Demirkan

affiliation not provided to SSRN

Date Written: April 1, 2010

Abstract

We investigate what kind of employment contract must be offered to the manager (agent) of a company by the owner (principal) in the case of strategic alliance formation by taking into consideration their industry life cycles. Agency problem may arise between managers and principals because managers’ actions may not be intrinsically unobservable in strategic alliances. Set of propositions and models are suggested mainly based on the various levels of uncertainty prevailing in the industry. Overall, we model that in mature stages of the industry principals are better off by offering the contract where agents receive a fixed payment (i.e. the first best solution).Whereas in growth stages agents get fixed payments with additional performance pay (i.e. the second best solution). In both cases the principals get the residual outcome.

Keywords: Agency theory, strategic alliances, employment contract designs, industry life cycles

JEL Classification: J33, L23

Suggested Citation

Demirkan, Sebahattin and Demirkan, Irem, Strategic Alliance and Employment Contract Designs: The Effect of Industry Life Cycles (April 1, 2010). Global Economics and Management Review, April 2010, AAA 2007 Management Accounting Section, Available at SSRN: https://ssrn.com/abstract=1004819

Sebahattin Demirkan

George Mason University - Department of Accounting ( email )

Irem Demirkan (Contact Author)

affiliation not provided to SSRN

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