In a globalized
marketplace, multinational organizations face multiple challenges across a
variety of cultural contexts. Using Geert Hofstede’s (1983) dimensions of
culture, this paper extends Eisenhardt’s (1989) work on agency theory by
exploring the applicability of agency theory to determine the optimal mechanism
between behavior-based contracts versus outcome-based contracts in different
cultural contexts. Four propositions are developed using dimensions of culture;
power distance, uncertainty avoidance, individualism/collectivism, and
masculinity/femininity; to help better understand the role culture has on the
principal – agent relationship.
