Nirvana efficiency: A comparative test of residual claims and routines

Two widely adopted views of firm efficiency are agency theorists' residual claims and organization theorists' routines. The agency view holds that ownership structures (and their proxies) are the primary source of efficiency differences between firms. The organization theory view holds that organizational routines are the primary source of efficiency differences between firms. We conduct an empirical test that compares the relative value of residual claims and routines in generating firm efficiency, while controlling other factors. We find support for both views, but more importantly find that the average value of routines is roughly an order of magnitude higher than residual claims.