Table of Contents

Innovation, Agglomeration and Regional Competition

Innovation, Agglomeration and Regional Competition

New Horizons in Regional Science series

Edited by Charlie Karlsson, Börje Johansson and Roger R. Stough

This book provides a state-of-the-art overview of current research on regional competition and co-operation. Developing our current understanding of the new role of regions and their behaviour, this book addresses questions such as: How and why do regions compete? How does competition between border regions operate? Which regions are successful and which regions fail? What are the implications of regional competition in terms of resource allocation, the location of economic activities and the distribution of incomes? The book illuminates a number of critical theoretical end empirical issues relating to the competitive and cooperative nature of regions, as well as highlighting a number of new case studies from a variety of countries.

Chapter 12: Agency Control Mechanisms and Innovative Effort

Raquel Ortega-Argilés, Rosina Moreno and Jordi Suriňach Caralt

Subjects: economics and finance, economics of innovation, regional economics, innovation and technology, economics of innovation, urban and regional studies, clusters, regional economics


Raquel Ortega-Argilés, Rosina Moreno and Jordi Suriñach Caralt1 12.1 INTRODUCTION The separation of ownership and control in the firm causes problems because of the informational asymmetries between managers and owners, which are known as agency problems. One of the most important consequences of this kind of problem is their bad influence in the firm’s decisionmaking process and investment decisions related to the firm’s growth in particular. In order to alleviate this kind of problem arising from the owner’s nondirect supervision of the manager’s decision, the ownership of the firm may develop several mechanisms that align the objectives pursued by the managers and owners. Control mechanisms are alternative ways of providing managers with incentives to achieve the owner’s objective of results that maximize profits. Inclusion of owners in the decision-making process, debt financing, ownership concentration in a few hands, providing the manager with company shares and the potential managerial labour market are some of these. The extent to which several of the control mechanisms are used is decided within the firm. The use of a mechanism will be increased until the firm’s marginal costs and marginal profits are equal. A number of empirical studies have analysed the effect that several mechanisms for controlling manager–shareholder agency problems have on firm performance and also on different types of investments. Some works analyse the nature of the determinants in the creation of the company’s value, introducing variables which define the agency control mechanisms (Agrawal and Knoeber, 1996; Hermanlin and Weisbach, 1991;...

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