Description
The study aims to fill the gap in literature by ascertaining the link between corporate entrepreneurship and agency cost.
Open Journal of Accounting, 2013, 2, 79-86http://dx.doi.org/10.4236/ojacct.2013.23010 Published Online J uly 2013 (http://www.scirp.org/journal/ojacct)
Corporate Entrepreneurship and Agency Cost:
A Theoretical Perspective
*
Syed Zulfiqar Ali Shah, Nousheen Tariq Bhutta
Faculty of Management Sciences, International Islamic University, Islamabad, Pakistan
Email: [email protected], [email protected]
Received November 1, 2012; revised December 12, 2012; accepted J anuary 8, 2013
Copyright ©2013 Syed Zulfiqar Ali Shah, Nousheen Tariq Bhutta. This is an open access article distributed under the Creative
Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original
work is properly cited.
ABSTRACT
The study aims to fill the gap in literature by ascertaining the link between corporate entrepreneurship and agency cost.
It presents conceptual framework between corporate entrepreneurship and agency cost, on the basis of their theoretical
background. Being a prelude endeavour, it provides a keystone for future studies.
Keywords: Corporate Entrepreneurship; Agency Cost; Relationship between Corporate Entrepreneurship; Agency Cost
1. Introduction
In recent years, the research on corporate entreprene-
urship has promoted rapidly, and it has been depicted
that corporate entrepreneurship reflects the development
and implementation of new ideas in organization [1] and
it might be a vital element of successful organizations [2].
Corporate entrepreneurship can enhance the share-
holder’s value by creating the work environment that
boosts the individual and corporate growth, presenting
employees an opportunity to utilize their creative skills
and formulating the organizational culture that enhance
the market performance of firm [3]. But sometimes the
executives want to maximize their share irrespective of
principals that lead to agency problems arising between
the shareholders and executives [4]. Firms having high
agency costs are expected to face the threats from other
firms in a competitive environment [5].
This study highlights the gap in literature by ascer-
taining relation between two well researched concepts;
i.e. corporate entrepreneurship and agency cost. Al-
though wide research on corporate entrepreneurship
[6-11] and agency cost [12-16] presents up to the lim-
ited knowledge & understanding of author, the link be-
tween corporate entrepreneurship and agency cost re-
mains unexplored. So the speciality of this study is to
explore the relationship between corporate entrepreneur-
ship and agency cost.
This study addresses a research question, given here
below.
? What would be the possible relation between corpo-
rate entrepreneurship and agency cost?
This paper is organized in a way that the first section
depicts the introduction of the study followed by a lit-
erature review to construct theoretical framework. After
that, the last section discusses the managerial implica-
tions and future research direction.
2. Literature Review
2.1. Corporate Entrepreneurship
The notion of corporate entrepreneurship was coined by
[6]. Corporate entrepreneurship, also presented as an
“intrapreneurship” [6,17], corporate venturing [18] and
internal corporate entrepreneurship [19]. Many scholars
defined corporate entrepreneurship as “a process by
which individuals inside organizations pursue opportuni-
ties independent of the resources they currently control”
[20]; “a procedure whereby an individual or a group of
individuals, in association with an existing organization,
create a new-fangled organization or initiate renewal or
innovation within that organization” [10]; “a spirit of
entrepreneurship within the existing organization” [21].
Other definitions of corporate entrepreneurship by re-
search scholars are given in Table 1, quoted by [22-25].
While reviewing the different definitions of corporate
entrepreneurship, it has been found that some authors
used the same terminologies for highlighting different
*
I, Nousheen Tariq Bhutta, dedicate this paper to my respectable
teacher Dr. Syed Zulfiqar Ali Shah for his valuable guidance and sup-
port throughout my dissertation.
Copyright ©2013 SciRes. OJAcct
S. Z. A. SHAH, N. T. BHUTTA 80
concepts, whereas some researchers used different ter-
minologies for emphasizing the same concept. Some
ideas relating to corporate entrepreneurship are inferred
from the above Table 1; those it confers the key concep-
tualization of corporate entrepreneurship are followed
by:
? Strategic renewal of firm and its structure & culture.
? Bringing novelty within the existing business.
Corporate entrepreneurship has become a crucial area
of management research for the last three decades as an
efficient technique for firms that operate in hostile envi-
ronment [8]. The changing nature of hospitality organi-
zation can be achieved by using the lens of corporate
entrepreneurship, rather than organizational structure
[26]. He also explained particular steps that firms can
take to promote innovation in existing environment. The
firms are positively related to an entrepreneurial strategic
stance, an organic structure, a competitive contour re-
vealing a long-term orientation, high product prices and a
concern for predicting industry trends in hostile envi-
ronment [27].
Many research scholars confirmed that corporate ent-
repreneurship has a multidimensional structure i.e. Risk-
taking, Innovativeness, Proactiveness and Competitive
Aggressiveness [9,11]. Risk-taking as an ability of or-
ganization to avail risky projects along with high ex-
pected return; innovativeness as an ability of organiza-
tion to engage in new business [28]; Proactiveness as
aptitude of organization to lead in quest of opportunities;
Competitive Aggressiveness as an ability of organization
to compete with its competitors to attain high market
share [9].
3. Corporate Entrepreneurship (CE)
Conceptual Models
Existing theories and models of corporate entrepreneur-
ship highlight the collaboration between entrepreneu-
rial’s personality and organizational environment [29].
Some models of corporate entrepreneurship are presented
below.
3.1. Model of Guth and Ginsberg (1990)
Figure 1 depicts the model of [30]. They developed the
Table 1. Definitions of corporate entrepreneurship.
Definitions of Corporate Entrepreneurship
Schollhammer (1982)
“Internal (or intra-corporate) entrepreneurship refers to all formalized entrepreneurial activities
within existing business organizations. Formalized internal entrepreneurial activities are those
which receive explicit organizational sanction and resource commitment for the purpose of innova-
tive corporate endeavours—new product developments, product improvements, new methods or
procedures (p. 211)”
Burgelman (1984)
“Corporate entrepreneurship as extending the firm’s domain of competence and corresponding
opportunity set through internally generated new resource combinations”
Pinchot (1985)
“Intrapreneurs are ‘dreamers who do’, those individuals who take hands-on responsibility for cre-
ating innovation of any kind within an organization. They may be the creators or inventors but are
always the dreamers who figure out how to turn an idea into a profitable reality (p. ix)”.
J ennings & Lumpkin (1989)
“Corporate entrepreneurship is defined as the extent to which new products and/or new markets are
developed. An organization is entrepreneurial if it develops a higher than average number of new
products and/or new markets (p. 489)”
Covin & Slevin (1989)
“Corporate entrepreneurship encourages leaders to promote innovativeness, pro-activeness and
risk taking among the members within a larger organizational context”
Guth & Ginsberg (1990)
“Corporate entrepreneurship encompasses two types of phenomena and the processes surrounding
them; 1) the birth of new businesses within existing organizations, i.e., internal innovations or
venturing and 2) the transformation of organizations through renewal of the key ideas on which
they are built, i.e. strategic renewal (p. 5)”
Covin & Slevin (1991)
“Corporate entrepreneurship involves extending the firm’s domain of competence and correspond-
ing opportunity set through internally generated new resource combinations (p. 7)”
J ones & Butler (1992) “Internal corporate entrepreneurship refers to entrepreneurial behaviour within one firm(p. 734)”
Zahra (1995, 1996)
“Corporate entrepreneurship is seen as the sumof a company’s innovation, renewal, and venturing
efforts. Innovation involves creating and introducing products, production processes and organiza-
tional systems. Renewal means revitalizing the company’s operations by changing the scope of its
business, its competitive approaches or both. It also means building or acquiring new capabilities
and then creatively leveraging themto add value for shareholders venturing means that the firmwill
enter new businesses by expanding operations in existing or new markets (1995, p. 227; 1996 p.
1715)”
Chung & Gibbons (1997)
“Corporate entrepreneurship is an organizational process for transforming individual ideas into col-
lective actions through the management of uncertainties (p. 14)”
Antoncic & Hisrich (2003)
“Entrepreneurship within an existing organization, including emergent behavioural intentions and
behaviours of an organization related to departures fromthe customary”
Kuratko, Ireland, Covin, & Hornsby (2005)
“Corporate entrepreneurship represents a set of behaviors “requiring organizational sanctions and
resource commitments for the purpose of developing different types of value-creating innovations”
(p. 700)”
Copyright ©2013 SciRes. OJAcct
S. Z. A. SHAH, N. T. BHUTTA 81
conceptual model of corporate entrepreneurship. They
hypothesized that corporate entrepreneurship comprises
of two phenomena; primarily “the birth of new busi-
nesses within existing organization” and secondly “the
transformation of organization through renewal”. [30]’s
model identifies the environment, strategic leadership,
organizational form and organizational performance as
antecedents of corporate entrepreneurship, while the
outcomes of corporate entrepreneurship are innovation/
venturing and strategic renewal.
3.2. Model of Covin and Slevin (1991)
Figure 2 depicts the model of [31]. The model of [31]
focuses on entrepreneurial orientation. It also demon-
strates the connection between company’s entrepreneu-
rial posture and its three factors, namely external envi-
ronment, strategic variables, internal variables and or-
ganizational performance. According to this model, en-
trepreneurial orientation leads to external environment,
strategic variables and internal variables even with a
weaker extent, but it shows a strong relationship with
organizational performance.
3.3. Model of Zahra (1993)
Figure 3 depicts the model of [31]. [32] revised the
model of [31] as she clearly categorized the external en-
vironmental factors and amalgamated the technological
sophistication factor with dynamism factor. He included
a new factor “munificence” which transpired opportunity
seeking for making innovations in the industry. Further-
more, he highlighted to deem the entrepreneurial activi-
ties both at domestic and international level. The model
of [31] incorporated the feedback loop between different
line [22].
3.4. Model of Lumpkin and Dess (1996)
Figure 4 shows the model of [9]. They presented a diver-
se model of corporate entrepreneurship which defined the
entrepreneurial orientation into five dimensions, namely
risk taking, innovativeness, proactiveness, competitive
aggressiveness and autonomy. They discussed that entre-
preneurial orientation concerns the processes, practices
and decision-making tasks that escort to entering into
new market along with new products and services. Ac-
cording to this model, a new entry conceives a key con-
cept of corporate entrepreneurship [22].
3.5. Model of Barrett and Weinstein (1998)
Figure 5 shows the model of [33]. They developed re-
lationships between corporate entrepreneurship, market
orientation, flexibility and firm performance in their
“corporate entrepreneurship, flexibility and market ori-
Organization
Performance
Effectiveness
Efficiency
Stakeholder
Innovation/Venturing within
Established Corporation
Strategic Renewal of
Established Corporation
Corporate
Entrepreneurship
Organization
Form
Strategy
Structure
Process
Strategic Leadership
Characteristics
Values
Behavior
Environment
Competitive
Technological
Social
Political
Figure 1. A strategic management perspective model of CE by Guth and Ginsberg (1990).
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S. Z. A. SHAH, N. T. BHUTTA 82
Entrepreneurial Posture Firm Performance
External Variables
External environment
Technological
Sophistication
Dynamism
Hostility
Industrial lifecycle
change
Strategic Variables
Business Strategy
Business Practices &
Competitive Tactics
Internal Variables
Top Management
Values and
Philosophies
Organizational Culture
Indicates a Moderating Effect
Indicates a Strong Main Effect
Figure 2. The Covin and Slevin (1991) model for corporate entrepreneurship.
entation (CEFMO)” model, endeavoring to elucidate the
organizational mission strategy.
3.6. Model of Goosen, De Coning and Smit
(2002)
Figure 6 shows the model of [34]. They incorporated
three well researched elements of corporate entrepre-
neurship, namely innovativeness, self renewal and proac-
tiveness.
This model presents some additional dimensions of
corporate entrepreneurship, namely market orientation,
managerial styles, organizational structure, strategy and
environment, innovativeness, risk taking, proactiveness
that enhance the organizational culture [22].
In this model Y (1) is the level of corporate entrep-
reneurship and I (1) is innovativeness component, M (1)
is management component and P (1) is proactiveness
component.
3.7. Public Sector Corporate Entrepreneurship
Model (2007)
Figure 7 shows the model of [24] that can be applied to
public sector organizations. In this model, they incorpo-
rated corporate entrepreneurship and its two antecedents’,
namely public sector organization and external environ-
ment.
This model presents the dimensions of public sector
organization (Structure/formalization, decision-making/
control, rewards/motivation, culture, risk taking and pro-
activeness) and external environment (political, com-
plexity, munificence and change) that can influence the
organization to employ the corporate entrepreneurial
task.
4. Agency Cost
Currently, agency problems are rapidly emerging in the
modern organizations [35] and are referred to as particu-
lar case in the current theory of firm [12]. It also pro-
posed that ownership and managerial interest may not be
linked, that leads to agency costs [12]. The model of
agency costs, first presented by [12], as “Agency costs as
the sum of three variables: 1) the monitoring expendi-
tures of the principle, 2) the bonding expenditures by the
agent, and 3) the residual loss”.
Agency cost can be apparent in various kinds contain-
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S. Z. A. SHAH, N. T. BHUTTA 83
Firm Performance
Non Financial
Financial
Firm Level
Entrepreneurship
Intensity
Personality
Type
External Environment
Dynamism
Hostility
Munificence
Strategic Variables
Mission
CompetitiveTactics
Internal Variables
Managerial value
Background variables
Structure
Culture
Indicates a Moderating Effect
Indicates a Strong Main Effect
Figure 3. The zahra (1993) model for corporate entrepreneurship.
Entrepreneurial
Orientation
Innovativeness
Risk taking
Proactiveness
Competitive advantage
Autonomy
Environmental Factors
Dynamisms
Munificence
Complexity
Performance
Sale Growth
Profitability
Overall Performance
Organizational Factors
Size
Structure
Strategy
Strategy-Making
Processes
Figure 4. The Lumpkin and Dess (1996) model for corporate entrepreneurship.
ing self interest behaviors of managers usually con-
erned on rank, excessive pr fit consumption, wrong de-
cision making regarding investment and firm, misalloca-
ion of resources and accounting practices; agency cost c o t
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S. Z. A. SHAH, N. T. BHUTTA 84
Mission/
Strategy
Growth
Stability
Build-Hold-Ha
rvest-Divest
Business
Performance
Corporate
Entrepreneurship
Flexibility Market
Orientation
Figure 5. The CEFMO model of Barrett and Weinstein (1998).
Management
Innovativeness
Proactiveness
Y (1)
M (1)
I (1)
P (1)
Internal
Focus
External
Focus
Figure 6. The model of model of goosen, de coning and smit (2002).
affects the shareholder’s wealth as well as other stake-
holders’ wealth like debt financers, employee society
[35].
5. Relationship between Corporate
Entrepreneurship and Agency Cost
A better consideration of the association between cor-
porate entrepreneurship and agency cost is imperative for
many reasons. Firstly, corporate entrepreneurship has
significant positive to firm performance [8,31,36]. How-
ever, agency cost has significantly negative to firm per-
formance [16,37,38]. They both inversely influence
firm performance. Secondly, corporate entrepreneurship
is a strategic track in achieving the competitive position
in a global environment [7,8]. On one hand, qualified
inside directors can assess the worth of corporate entre-
preneurship tasks more consistently [39]. Thirdly, agen-
cy theory also escorts to hypothesize that in the competi-
tive milieu generally companies having high levels of
agency cost are apt to face threats from their rival com-
panies [5]. However, through efficient competition the
agency cost can be minimized while increasing the
managerial efficiency that would lead to market perfor-
mance benefits, in the form of increased valuation [40].
From that it can be supposed that high agency cost dis-
courages the competitive advantage which leads to lower
corporate entrepreneurship. It infers that competitive
advantage reduces the agency cost that leads to high
corporate entrepreneurship. This appears that nexus be-
tween corporate entrepreneurship and agency cost may
be bi-directional in nature. For further justification the
relationship between agency costs and the dimensions of
corporate entrepreneurship were explored.
6. Conclusion and Research Implications
The novel feature of this study is to bridge a gap between
corporate entrepreneurship and agency cost. Being a first
endeavor to gain the notice of academicians and practi-
tioners towards this oversight in literature by collaborat-
ing the corporate entrepreneurship and agency cost, this
Copyright ©2013 SciRes. OJAcct
S. Z. A. SHAH, N. T. BHUTTA 85
Public Sector Organization
•Structure/Formalization
•Decision-Making/ Control
•Rewards/ Motivation
•Culture
•Risk Taking
•Proactivity
External Environment
•Political
•Complexity
•Munificence
•Change
Corporate
Entrepreneurship
•Innovation
Performance
•Growth
•Development
•Productivity
Figure 7. Model of public sector corporate entrepreneurship (2007).
study provides a keystone for future studies. Entrepre-
neurs bring innovative ideas into organizations while
incorporating corporate entrepreneurship. Entrepreneurs
actively contribute to strategic orientation process. They
do not depend upon manager’s actions for value creation
that reduces managerial self interest. Ultimately, this
theoretical relationship would be empirically tested at
home or abroad in future studies
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doc_627818135.pdf
The study aims to fill the gap in literature by ascertaining the link between corporate entrepreneurship and agency cost.
Open Journal of Accounting, 2013, 2, 79-86http://dx.doi.org/10.4236/ojacct.2013.23010 Published Online J uly 2013 (http://www.scirp.org/journal/ojacct)
Corporate Entrepreneurship and Agency Cost:
A Theoretical Perspective
*
Syed Zulfiqar Ali Shah, Nousheen Tariq Bhutta
Faculty of Management Sciences, International Islamic University, Islamabad, Pakistan
Email: [email protected], [email protected]
Received November 1, 2012; revised December 12, 2012; accepted J anuary 8, 2013
Copyright ©2013 Syed Zulfiqar Ali Shah, Nousheen Tariq Bhutta. This is an open access article distributed under the Creative
Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original
work is properly cited.
ABSTRACT
The study aims to fill the gap in literature by ascertaining the link between corporate entrepreneurship and agency cost.
It presents conceptual framework between corporate entrepreneurship and agency cost, on the basis of their theoretical
background. Being a prelude endeavour, it provides a keystone for future studies.
Keywords: Corporate Entrepreneurship; Agency Cost; Relationship between Corporate Entrepreneurship; Agency Cost
1. Introduction
In recent years, the research on corporate entreprene-
urship has promoted rapidly, and it has been depicted
that corporate entrepreneurship reflects the development
and implementation of new ideas in organization [1] and
it might be a vital element of successful organizations [2].
Corporate entrepreneurship can enhance the share-
holder’s value by creating the work environment that
boosts the individual and corporate growth, presenting
employees an opportunity to utilize their creative skills
and formulating the organizational culture that enhance
the market performance of firm [3]. But sometimes the
executives want to maximize their share irrespective of
principals that lead to agency problems arising between
the shareholders and executives [4]. Firms having high
agency costs are expected to face the threats from other
firms in a competitive environment [5].
This study highlights the gap in literature by ascer-
taining relation between two well researched concepts;
i.e. corporate entrepreneurship and agency cost. Al-
though wide research on corporate entrepreneurship
[6-11] and agency cost [12-16] presents up to the lim-
ited knowledge & understanding of author, the link be-
tween corporate entrepreneurship and agency cost re-
mains unexplored. So the speciality of this study is to
explore the relationship between corporate entrepreneur-
ship and agency cost.
This study addresses a research question, given here
below.
? What would be the possible relation between corpo-
rate entrepreneurship and agency cost?
This paper is organized in a way that the first section
depicts the introduction of the study followed by a lit-
erature review to construct theoretical framework. After
that, the last section discusses the managerial implica-
tions and future research direction.
2. Literature Review
2.1. Corporate Entrepreneurship
The notion of corporate entrepreneurship was coined by
[6]. Corporate entrepreneurship, also presented as an
“intrapreneurship” [6,17], corporate venturing [18] and
internal corporate entrepreneurship [19]. Many scholars
defined corporate entrepreneurship as “a process by
which individuals inside organizations pursue opportuni-
ties independent of the resources they currently control”
[20]; “a procedure whereby an individual or a group of
individuals, in association with an existing organization,
create a new-fangled organization or initiate renewal or
innovation within that organization” [10]; “a spirit of
entrepreneurship within the existing organization” [21].
Other definitions of corporate entrepreneurship by re-
search scholars are given in Table 1, quoted by [22-25].
While reviewing the different definitions of corporate
entrepreneurship, it has been found that some authors
used the same terminologies for highlighting different
*
I, Nousheen Tariq Bhutta, dedicate this paper to my respectable
teacher Dr. Syed Zulfiqar Ali Shah for his valuable guidance and sup-
port throughout my dissertation.
Copyright ©2013 SciRes. OJAcct
S. Z. A. SHAH, N. T. BHUTTA 80
concepts, whereas some researchers used different ter-
minologies for emphasizing the same concept. Some
ideas relating to corporate entrepreneurship are inferred
from the above Table 1; those it confers the key concep-
tualization of corporate entrepreneurship are followed
by:
? Strategic renewal of firm and its structure & culture.
? Bringing novelty within the existing business.
Corporate entrepreneurship has become a crucial area
of management research for the last three decades as an
efficient technique for firms that operate in hostile envi-
ronment [8]. The changing nature of hospitality organi-
zation can be achieved by using the lens of corporate
entrepreneurship, rather than organizational structure
[26]. He also explained particular steps that firms can
take to promote innovation in existing environment. The
firms are positively related to an entrepreneurial strategic
stance, an organic structure, a competitive contour re-
vealing a long-term orientation, high product prices and a
concern for predicting industry trends in hostile envi-
ronment [27].
Many research scholars confirmed that corporate ent-
repreneurship has a multidimensional structure i.e. Risk-
taking, Innovativeness, Proactiveness and Competitive
Aggressiveness [9,11]. Risk-taking as an ability of or-
ganization to avail risky projects along with high ex-
pected return; innovativeness as an ability of organiza-
tion to engage in new business [28]; Proactiveness as
aptitude of organization to lead in quest of opportunities;
Competitive Aggressiveness as an ability of organization
to compete with its competitors to attain high market
share [9].
3. Corporate Entrepreneurship (CE)
Conceptual Models
Existing theories and models of corporate entrepreneur-
ship highlight the collaboration between entrepreneu-
rial’s personality and organizational environment [29].
Some models of corporate entrepreneurship are presented
below.
3.1. Model of Guth and Ginsberg (1990)
Figure 1 depicts the model of [30]. They developed the
Table 1. Definitions of corporate entrepreneurship.
Definitions of Corporate Entrepreneurship
Schollhammer (1982)
“Internal (or intra-corporate) entrepreneurship refers to all formalized entrepreneurial activities
within existing business organizations. Formalized internal entrepreneurial activities are those
which receive explicit organizational sanction and resource commitment for the purpose of innova-
tive corporate endeavours—new product developments, product improvements, new methods or
procedures (p. 211)”
Burgelman (1984)
“Corporate entrepreneurship as extending the firm’s domain of competence and corresponding
opportunity set through internally generated new resource combinations”
Pinchot (1985)
“Intrapreneurs are ‘dreamers who do’, those individuals who take hands-on responsibility for cre-
ating innovation of any kind within an organization. They may be the creators or inventors but are
always the dreamers who figure out how to turn an idea into a profitable reality (p. ix)”.
J ennings & Lumpkin (1989)
“Corporate entrepreneurship is defined as the extent to which new products and/or new markets are
developed. An organization is entrepreneurial if it develops a higher than average number of new
products and/or new markets (p. 489)”
Covin & Slevin (1989)
“Corporate entrepreneurship encourages leaders to promote innovativeness, pro-activeness and
risk taking among the members within a larger organizational context”
Guth & Ginsberg (1990)
“Corporate entrepreneurship encompasses two types of phenomena and the processes surrounding
them; 1) the birth of new businesses within existing organizations, i.e., internal innovations or
venturing and 2) the transformation of organizations through renewal of the key ideas on which
they are built, i.e. strategic renewal (p. 5)”
Covin & Slevin (1991)
“Corporate entrepreneurship involves extending the firm’s domain of competence and correspond-
ing opportunity set through internally generated new resource combinations (p. 7)”
J ones & Butler (1992) “Internal corporate entrepreneurship refers to entrepreneurial behaviour within one firm(p. 734)”
Zahra (1995, 1996)
“Corporate entrepreneurship is seen as the sumof a company’s innovation, renewal, and venturing
efforts. Innovation involves creating and introducing products, production processes and organiza-
tional systems. Renewal means revitalizing the company’s operations by changing the scope of its
business, its competitive approaches or both. It also means building or acquiring new capabilities
and then creatively leveraging themto add value for shareholders venturing means that the firmwill
enter new businesses by expanding operations in existing or new markets (1995, p. 227; 1996 p.
1715)”
Chung & Gibbons (1997)
“Corporate entrepreneurship is an organizational process for transforming individual ideas into col-
lective actions through the management of uncertainties (p. 14)”
Antoncic & Hisrich (2003)
“Entrepreneurship within an existing organization, including emergent behavioural intentions and
behaviours of an organization related to departures fromthe customary”
Kuratko, Ireland, Covin, & Hornsby (2005)
“Corporate entrepreneurship represents a set of behaviors “requiring organizational sanctions and
resource commitments for the purpose of developing different types of value-creating innovations”
(p. 700)”
Copyright ©2013 SciRes. OJAcct
S. Z. A. SHAH, N. T. BHUTTA 81
conceptual model of corporate entrepreneurship. They
hypothesized that corporate entrepreneurship comprises
of two phenomena; primarily “the birth of new busi-
nesses within existing organization” and secondly “the
transformation of organization through renewal”. [30]’s
model identifies the environment, strategic leadership,
organizational form and organizational performance as
antecedents of corporate entrepreneurship, while the
outcomes of corporate entrepreneurship are innovation/
venturing and strategic renewal.
3.2. Model of Covin and Slevin (1991)
Figure 2 depicts the model of [31]. The model of [31]
focuses on entrepreneurial orientation. It also demon-
strates the connection between company’s entrepreneu-
rial posture and its three factors, namely external envi-
ronment, strategic variables, internal variables and or-
ganizational performance. According to this model, en-
trepreneurial orientation leads to external environment,
strategic variables and internal variables even with a
weaker extent, but it shows a strong relationship with
organizational performance.
3.3. Model of Zahra (1993)
Figure 3 depicts the model of [31]. [32] revised the
model of [31] as she clearly categorized the external en-
vironmental factors and amalgamated the technological
sophistication factor with dynamism factor. He included
a new factor “munificence” which transpired opportunity
seeking for making innovations in the industry. Further-
more, he highlighted to deem the entrepreneurial activi-
ties both at domestic and international level. The model
of [31] incorporated the feedback loop between different
line [22].
3.4. Model of Lumpkin and Dess (1996)
Figure 4 shows the model of [9]. They presented a diver-
se model of corporate entrepreneurship which defined the
entrepreneurial orientation into five dimensions, namely
risk taking, innovativeness, proactiveness, competitive
aggressiveness and autonomy. They discussed that entre-
preneurial orientation concerns the processes, practices
and decision-making tasks that escort to entering into
new market along with new products and services. Ac-
cording to this model, a new entry conceives a key con-
cept of corporate entrepreneurship [22].
3.5. Model of Barrett and Weinstein (1998)
Figure 5 shows the model of [33]. They developed re-
lationships between corporate entrepreneurship, market
orientation, flexibility and firm performance in their
“corporate entrepreneurship, flexibility and market ori-
Organization
Performance
Effectiveness
Efficiency
Stakeholder
Innovation/Venturing within
Established Corporation
Strategic Renewal of
Established Corporation
Corporate
Entrepreneurship
Organization
Form
Strategy
Structure
Process
Strategic Leadership
Characteristics
Values
Behavior
Environment
Competitive
Technological
Social
Political
Figure 1. A strategic management perspective model of CE by Guth and Ginsberg (1990).
Copyright ©2013 SciRes. OJAcct
S. Z. A. SHAH, N. T. BHUTTA 82
Entrepreneurial Posture Firm Performance
External Variables
External environment
Technological
Sophistication
Dynamism
Hostility
Industrial lifecycle
change
Strategic Variables
Business Strategy
Business Practices &
Competitive Tactics
Internal Variables
Top Management
Values and
Philosophies
Organizational Culture
Indicates a Moderating Effect
Indicates a Strong Main Effect
Figure 2. The Covin and Slevin (1991) model for corporate entrepreneurship.
entation (CEFMO)” model, endeavoring to elucidate the
organizational mission strategy.
3.6. Model of Goosen, De Coning and Smit
(2002)
Figure 6 shows the model of [34]. They incorporated
three well researched elements of corporate entrepre-
neurship, namely innovativeness, self renewal and proac-
tiveness.
This model presents some additional dimensions of
corporate entrepreneurship, namely market orientation,
managerial styles, organizational structure, strategy and
environment, innovativeness, risk taking, proactiveness
that enhance the organizational culture [22].
In this model Y (1) is the level of corporate entrep-
reneurship and I (1) is innovativeness component, M (1)
is management component and P (1) is proactiveness
component.
3.7. Public Sector Corporate Entrepreneurship
Model (2007)
Figure 7 shows the model of [24] that can be applied to
public sector organizations. In this model, they incorpo-
rated corporate entrepreneurship and its two antecedents’,
namely public sector organization and external environ-
ment.
This model presents the dimensions of public sector
organization (Structure/formalization, decision-making/
control, rewards/motivation, culture, risk taking and pro-
activeness) and external environment (political, com-
plexity, munificence and change) that can influence the
organization to employ the corporate entrepreneurial
task.
4. Agency Cost
Currently, agency problems are rapidly emerging in the
modern organizations [35] and are referred to as particu-
lar case in the current theory of firm [12]. It also pro-
posed that ownership and managerial interest may not be
linked, that leads to agency costs [12]. The model of
agency costs, first presented by [12], as “Agency costs as
the sum of three variables: 1) the monitoring expendi-
tures of the principle, 2) the bonding expenditures by the
agent, and 3) the residual loss”.
Agency cost can be apparent in various kinds contain-
Copyright ©2013 SciRes. OJAcct
S. Z. A. SHAH, N. T. BHUTTA 83
Firm Performance
Non Financial
Financial
Firm Level
Entrepreneurship
Intensity
Personality
Type
External Environment
Dynamism
Hostility
Munificence
Strategic Variables
Mission
CompetitiveTactics
Internal Variables
Managerial value
Background variables
Structure
Culture
Indicates a Moderating Effect
Indicates a Strong Main Effect
Figure 3. The zahra (1993) model for corporate entrepreneurship.
Entrepreneurial
Orientation
Innovativeness
Risk taking
Proactiveness
Competitive advantage
Autonomy
Environmental Factors
Dynamisms
Munificence
Complexity
Performance
Sale Growth
Profitability
Overall Performance
Organizational Factors
Size
Structure
Strategy
Strategy-Making
Processes
Figure 4. The Lumpkin and Dess (1996) model for corporate entrepreneurship.
ing self interest behaviors of managers usually con-
erned on rank, excessive pr fit consumption, wrong de-
cision making regarding investment and firm, misalloca-
ion of resources and accounting practices; agency cost c o t
Copyright ©2013 SciRes. OJAcct
S. Z. A. SHAH, N. T. BHUTTA 84
Mission/
Strategy
Growth
Stability
Build-Hold-Ha
rvest-Divest
Business
Performance
Corporate
Entrepreneurship
Flexibility Market
Orientation
Figure 5. The CEFMO model of Barrett and Weinstein (1998).
Management
Innovativeness
Proactiveness
Y (1)
M (1)
I (1)
P (1)
Internal
Focus
External
Focus
Figure 6. The model of model of goosen, de coning and smit (2002).
affects the shareholder’s wealth as well as other stake-
holders’ wealth like debt financers, employee society
[35].
5. Relationship between Corporate
Entrepreneurship and Agency Cost
A better consideration of the association between cor-
porate entrepreneurship and agency cost is imperative for
many reasons. Firstly, corporate entrepreneurship has
significant positive to firm performance [8,31,36]. How-
ever, agency cost has significantly negative to firm per-
formance [16,37,38]. They both inversely influence
firm performance. Secondly, corporate entrepreneurship
is a strategic track in achieving the competitive position
in a global environment [7,8]. On one hand, qualified
inside directors can assess the worth of corporate entre-
preneurship tasks more consistently [39]. Thirdly, agen-
cy theory also escorts to hypothesize that in the competi-
tive milieu generally companies having high levels of
agency cost are apt to face threats from their rival com-
panies [5]. However, through efficient competition the
agency cost can be minimized while increasing the
managerial efficiency that would lead to market perfor-
mance benefits, in the form of increased valuation [40].
From that it can be supposed that high agency cost dis-
courages the competitive advantage which leads to lower
corporate entrepreneurship. It infers that competitive
advantage reduces the agency cost that leads to high
corporate entrepreneurship. This appears that nexus be-
tween corporate entrepreneurship and agency cost may
be bi-directional in nature. For further justification the
relationship between agency costs and the dimensions of
corporate entrepreneurship were explored.
6. Conclusion and Research Implications
The novel feature of this study is to bridge a gap between
corporate entrepreneurship and agency cost. Being a first
endeavor to gain the notice of academicians and practi-
tioners towards this oversight in literature by collaborat-
ing the corporate entrepreneurship and agency cost, this
Copyright ©2013 SciRes. OJAcct
S. Z. A. SHAH, N. T. BHUTTA 85
Public Sector Organization
•Structure/Formalization
•Decision-Making/ Control
•Rewards/ Motivation
•Culture
•Risk Taking
•Proactivity
External Environment
•Political
•Complexity
•Munificence
•Change
Corporate
Entrepreneurship
•Innovation
Performance
•Growth
•Development
•Productivity
Figure 7. Model of public sector corporate entrepreneurship (2007).
study provides a keystone for future studies. Entrepre-
neurs bring innovative ideas into organizations while
incorporating corporate entrepreneurship. Entrepreneurs
actively contribute to strategic orientation process. They
do not depend upon manager’s actions for value creation
that reduces managerial self interest. Ultimately, this
theoretical relationship would be empirically tested at
home or abroad in future studies
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