Digital Governance Mechanisms and Their Role in Reducing Agency Problems

Abstract

The agency issues arise when the interests of the principal (shareholders) and the agency (management) are not congruent and this results to inefficiency and even money losses. Examples of digital governance mechanisms that will enhance transparency, accountability, and control in organizations are ERP systems, blockchain, online surveillance tools, and automated reporting. These technologies minimize information asymmetry and make it possible to monitor managerial activity in real-time. Recent research indicates that digital governance has the potential of reducing agency costs, enhancing decision-making, and alignment of incentives. The opportunistic behavior can be reduced with the assistance of automated dashboards, blockchain verification, and digital reporting systems, which enhance compliance. The use of these mechanisms is becoming more and more imperative in the emerging and developed market. Digital governance enhances efficiency within the organization, confidence of shareholders, and ethical behaviors. Among them, there is integration cost, cybersecurity threats, and technological change resistance. This paper discusses the role of digital governing systems in minimizing agency issues and maximizing performance. It gives enlightenment to managers and policymakers to improve corporate governance through the application of technology.