Perceptions of Benevolence and the Design of Agency Contracts: CEO-TMT Relationships in Family Firms

Abstract

In this study, we view the contracts of top managers from an integrated agency theory-trust perspective, arguing that two conditions reflecting CEO risk bearing, top management team (TMT) behavioral uncertainty and CEO vulnerability, are negatively related to a CEO's perceptions of TMT benevolence toward him-/herself, which in turn influence the protective features of TMT contracts. Model tests on data from 122 family-owned firms in Spain support our hypotheses overall. Agency theory may be enhanced by accounting for a CEO's perceptions (as principal) of TMT benevolence and for the effect of those perceptions on contracts with TMT members (as agents).