Control Orientation and Firm Performance: Test of an Agency Theory Interpretation of Strategic Human Resource Management

Abstract

Agency theory is used to develop an approach toward organizational control that elaborates upon the construct underlying strategic human resource management. Additionally, firm risk is examined as a moderator to determine how control orientation affects firm performance. A sample of initial public offering firms is studied, and both short and long-term stock price, in addition to firm survival, are predicted. Results support agency and SHRM notions that incentive alignment increases stock price in high risk firms; however, it negatively affects firm survival. Several explanations for the polarizing effect of risk are discussed