International Academic Journal of Entrepreneurship

A Test of the Market for Managers: Buying Success in the Market for Football Managers

*Stephen A. Butler
Department Of Management And Entrepreneurship, College Of Business, University Of South Dakota, Vermillion, United States

*Corresponding Author:
Stephen A. Butler
Department Of Management And Entrepreneurship, College Of Business, University Of South Dakota, Vermillion, United States
Email:sabutler2010@hotmail.com

Published on: 2019-05-08

Abstract

Agency theory poses the problem that as an organization grows from a sole proprietorship to one that hires managers to make day to day operating decisions. The managers are likely to make decisions in their own best interest rather than in the interest of the owners. The two general ways of controlling this behavior is through the use of compensation contracts and/or through the use of internal controls. Observing decisions is rarely used but is a useful manner to control decisions. Most studies have lacked the ability to measure specific outcomes with specific managers. We study the ability of the market for soccer (football) managers to reward with salary the managers for their ability to manage the assets available to them. We examine the rank order of a manager’s salary and its ability to predict the rank order of the result of the World Cup tournament. We are unable to find a statistically significant result between salary and World Cup rank. Success is only observed in the top four national teams. All others appear to exhibit random results. Regardless of how talented a player is, if the manager does not make optimum use of the player, the organization will perform at a subpar level. In this case, other control mechanisms instead of compensation should be used to induce the manager to make optimal decisions for the organization.

Keywords

Agency Theory; Managers; World Cup Tournament; Rank Order

Introduction

Agency theory poses the problem that as an organization grows from a sole proprietorship to one that hires managers to make day to day operating decisions. The managers are likely to make decisions in their own best interest rather than in the interest of the owners.  The two general ways of controlling this behavior is through the use of compensation contracts and/or through the use of internal controls.  Fama [1] proposed that the market for managers will discipline the managers through the use of compensation contracts.  A number of studies have investigated this possibility [2, 3].  However most of these have lacked the ability to measure specific outcomes with specific managers.  We study the ability of the market for soccer managers to reward through salary the managers for their ability to manage the assets available to them.  The two general ways of controlling this behavior is through the use of compensation contracts and/or through the use of internal controls.