Re-examining agency theory in analyzing conflict of interest in cash transfer’s influence on entrepreneurs’ welfare: theoretical review and emerging research agenda

Cash transfers (CT) play a critical role in improving recipients’ welfare in marginalized communities. However, conflict of interest affects CT effectiveness. Through a review of existing literature, the paper argues that personal financial challenges faced by CT program managers are an important factor that causes fund diversion. By drawing attention to this overlooked mechanism, the paper uncovers a critical yet insufficiently examined source of conflict of interest in CT implementation. The study proposes consideration of personal financial situation when reviewing the impact of such conflict on targeting entrepreneurs and its effect on program outcomes. This offers a fresh analytical lens that connects managers’ financial pressures to distortions in entrepreneurial targeting, thereby extending existing explanations that focus on deliberate malpractice. The study re-examines agency theory when applied to CT and makes a theoretical contribution by broadening agency theory to include non-malicious, economically motivated forms of diversion. Although, it creates a conflict of interest, the diverted funds may still contribute positively to community welfare. The study re-conceptualizes fund diversion as a multidimensional phenomenon influenced not only by opportunistic behavior but also by agents’ economic vulnerabilities, thereby providing a more comprehensive frame work for enhancing cash transfer governance.