On the conditional nature of corporate governance theories

Abstract

Corporate governance theories are inherently conditional: their predictions do not apply universally, but depend on specific assumptions about incentives, information asymmetries, contracting possibilities, and enforcement mechanisms. In the corporate governance literature, agency theory in particular generates hypotheses that are best understood as if–then statements. Meaningful empirical testing, therefore, requires assessing whether the empirical setting under investigation approximates the conditions under which agency-theoretic arguments are expected to hold. In practice, however, empirical studies typically rely on broadly representative samples that combine observations that do and do not satisfy these conditions, complicating the interpretation of results and, more fundamentally, obscuring whether the theoretical mechanisms being tested are actually operative. The literature is not always explicit about the places, times, and institutional environments in which standard agency-based predictions are meant to apply, and such arguments are frequently used across contexts without sufficient scrutiny of their underlying assumptions. This paper discusses the conditional applicability of widely used agency‑theoretic arguments in corporate governance and develops a structured framework for identifying their domain of applicability in settings where theoretical boundaries are only partially specified. The framework shows how empirical researchers can systematically infer applicability conditions from the internal logic of the theory, define them explicitly prior to evaluating results, and maintain openness to empirical challenge while avoiding ex post reinterpretation.