We challenge critics of agency theory who suggest that agency theory's value does not extend outside a narrow context dominated by egocentric agents seeking only to maximize wealth at the expense of the principal. Instead, we argue that agency theory's flexibility allows for its application to a variety of non-traditional settings where the key elements of agency theory, such as self-interest, information asymmetry, and the mechanisms used to control agency costs can vary beyond the narrow assumptions implied in traditional agency-based research. We suggest that extending agency theory to diverse settings using a deductive approach can be accomplished by formally recognizing and incorporating the institutional context surrounding principal-agent (P-A) relations into agency-based models. Thus, criticisms that agency theory fails to acknowledge the social context in which P-A relations occur provides not a barrier but an opportunity for extending our understanding of P-A relations to a variety of diverse contexts.

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We examine the role of internal and external relational social capital (SC) as determinants of radical product innovation (RPI). By analysing both sides of SC, we provide interesting insights on their relative influence and their interaction effect on this type of innovation. Besides, traditional assumptions on SC and innovation are questioned. In our empirical study using a sample of 142 manufacturing and service companies we found that, of the two types of SC analysed, internal SC is the most relevant predictor of RPI in relation to either technological or market dimensions. The influence of external SC is not as strong as the internal one. Regarding their interaction effect, external SC reduces the positive effect of internal SC on the market dimension of RPI. Interesting implications arise for practitioners, who should pay special attention to the higher impact of internal SC on RPI and the need to carefully manage the difficulties that emerge when it is combined with external SC.

Manuscript Type Conceptual Research Question/Issue In this paper we discuss three assumptions of agency theory: (1) conflicts of interest between principal and agent, (2) nature of risk, and (3) the proposed internal mechanisms to reduce agency costs. We review criticisms of agency theory's pessimistic assumptions of human behavior and its simplistic view about individual risk preferences to argue how the context may influence both the interest and mechanisms for aligning interest of principals and agents. Research Findings/Insights We draw on alternative theoretical perspectives from behavioral and organizational sciences to describe circumstances under which honesty, loyalty, and trust in agents' behaviors are possible and also the development of cooperative rather than contentious relationships. Theoretical/Academic Implications This study explores the boundary conditions of traditional agency theory in the hope of extending agency theory outside its current contextual boundaries. In doing so, we provide a more robust and exhaustive view of the economic exchange between principals and agents. Practitioner/Policy Implications This study offers insights to managers about how intrinsic incentives may provide an alternative mechanism of control over agents' behavior to extrinsic incentives prescribed by traditional agency theory. Indeed, intrinsic incentives of personal satisfaction and identification with organizational objects, combined with implicit social obligations and reciprocity may, under certain circumstances, provide stronger restraints on agent opportunism than the use of traditional extrinsic rewards in the form of incentive alignment.