This paper integrates elements from the theory of agency‚ the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We focus in this paper on the behavioral implications of the property rights specified in the contracts between the owners and managers of the firm. The possibility of monitoring the behavior of the company by means of review of controls has stayed aside in this analysis. In the activity they can use resources for changing
Premium Property Ownership Real estate
elsevier.com/locate/econbase Ownership structure‚ managerial behavior and corporate value J.R. Daviesa‚ David Hillierb‚T‚ Patrick McColganc a University of Strathclyde‚ UK b University of Leeds‚ UK c University of Aberdeen‚ UK Received 21 November 2002; accepted 6 July 2004 Available online 20 April 2005 Abstract The nonlinear relationship between corporate value and managerial ownership is well documented. This has been attributed to the onset of managerial entrenchment‚ which results
Premium Stock market Investment Stock
Managerial theories of the firm Managerial theories of the firm place emphasis on various incentive mechanisms in explaining the behaviour of managers and the implications of this conduct for their companies and the wider economy. According to traditional theories‚ the firm is controlled by its owners and thus wishes to maximise short run profits. The more contemporary managerial theories of the firm examine the possibility that the firm is controlled not by its owners‚ but by its managers‚ and
Premium Management Profit maximization
AGENCY THEORY AND FIRM PERFORMANCE By Alex Ganas Department of M.B.A At the university of I.S.T / L.S.B.U There has been considerable discussion of managerial agency and firm performance problems that arise from the separation of ownership and control. Economists have long been concerned with the incentive problems that arise when decision making in a firm is the province of managers who are not the firm ’s security holders. The adoption of the agency logic increased during
Premium Management Corporate governance Economics
Managerial Theories of Firm Marris and Williamson’s Models Marris’ Managerial Thesis of Firm Marris has put forth a significant thesis of firm as per which the managers do not optimise profits but in its place as per him‚ they look for to optimise profits balanced rate of increase of the firm. Optimisation of balanced rate of increase of the firm entails optimisation of the rate of increase of demand for the commodities of the firm and rate of increase of capital supply. If I symbolises
Premium Management
decisions‚ the optimization of capital structure has a great influence on the performance of the companies‚ for a reasonable capital structure can decrease the financing cost‚ take advantage of the financial leverage and play an important role in corporation governance. Given the importance of capital structure‚ this essay will firstly discuss the ways that capital structure affects corporation value‚ then it will introduce the influencing factors of capital structure and how to effectively manage it.
Premium Finance Weighted average cost of capital Economics
Agency Costs of Free Cash Flow‚ Corporate Finance‚ and Takeovers Michael C. Jensen Harvard Business School MJensen@hbs.edu Abstract The interests and incentives of managers and shareholders conflict over such issues as the optimal size of the firm and the payment of cash to shareholders. These conflicts are especially severe in firms with large free cash flows—more cash than profitable investment opportunities. The theory developed here explains 1) the benefits of debt in reducing agency
Premium Corporate finance
above foreman level on the works side and those above the first level of supervision in the offices. Managerial behaviour is the behaviour that can be reported‚ whether from observation by others or by self-reports. Managerial objective is the aim that a manager of a firm wants to achieve. In perfect markets a proper managerial objective is to maximize its firm’s market value. The powers of the managerial behaviour are by no means unconstrained. On one hand they are constrained by the shareholder‚ involuntary
Premium Management Stock market Stock
THE JOURNAL OF FINANCE • VOL. LIII‚ NO. 4 • AUGUST 1998 Agency Costs‚ Risk Management‚ and Capital Structure HAYNE E. LELAND* ABSTRACT The joint determination of capital structure and investment risk is examined. Optimal capital structure ref lects both the tax advantages of debt less default costs ~Modigliani and Miller ~1958‚ 1963!!‚ and the agency costs resulting from asset substitution ~Jensen and Meckling ~1976!!. Agency costs restrict leverage and debt maturity and increase yield spreads
Premium Capital structure Corporate finance Debt
Module Title: Finance Principles Module Code: 5AC002 Module Leader: William Coffie Student Name and Number: Qianhui MA(1223583) Date of Submission: 14th Jan 2013 Words: 1441 Agency Theory and Corporate Governance Introduction In 26th February 1995‚ the Barings Bank‚ one of the oldest banks of the United Kingdom was declared bankrupt. Nick Leeson‚ the trader of the bank in Singapore had lost $1.4 billion on derivatives trading while the bank reported capital was only about
Premium Governance Principal-agent problem Management