Abstract:
This study aims to extend the relationship of corporate entrepreneurship and agency cost,
to firm performance. It also examines this relationship in the presence of behavioral biases to
address the behavioral finance approach, and validates it in developed (USA) and developing
(Pakistan) economies, in order to generalize the study. The design of this dissertation is to
investigate the relationship of corporate entrepreneurship, agency cost and firm performance
across both behavioral and traditional approaches of finance. The validated construct has been
adopted to measure the corporate entrepreneurship, behavioral biases and risk perception of USA
and Pakistani non-financial sector companies listed on the New York Stock Exchange (NYSE)
and the Karachi Stock Exchange (KSE), respectively. The data for firm performance and agency
cost has been taken from Balance Sheets Analyses (SBP Report) for Pakistani companies and
from annual reports of the USA companies on a three yearly average bases (2009, 2010 and
2011).
The findings highlight the significant negative relationship between corporate
entrepreneurship and agency cost in USA, showing that corporate entrepreneurship can act as an
excellent technique in reducing agency problems within organizations, ultimately leading to high
performance, however, there is an insignificant impact between corporate entrepreneurship and
agency cost in Pakistani context. Regarding the behavioral finance approach, both economies
didn’t show any significant relationship of behavioral biases on risk perception; however, a
significant relationship of risk perception on corporate entrepreneurship, depicts behavioral
biases didn’t impact corporate finance decisions. It shows that corporate finance decisions may
differ from person to person irrespective from culture to culture and from country to country,
pointing towards individualistic approach. This study provides a foundation for future studies on
the relationship of corporate entrepreneurship, agency cost and firm performance. My study
helps executives to assess their own scenario while making effective entrepreneurial and
financial decisions within companies and how to control or reduce the impact of behavioral
biases in particular situations, in order to maximize their return
Keywords: Corporate Entrepreneurship, Agency Cost, Firm Performance, Behavioral Biases, and
Corporate Financial Decisions.