What is Jensen and Meckling theory?
What is Jensen and Meckling theory?
Theory of the Corporate Ownership Structure. Jensen and Meckling (1976) use the term “ownership structure” rather than “capital structure” to highlight the fact that the crucial variables to be determined are not just the relative amounts of debt and equity but also the fraction of the equity held by the manager.
What is agency theory in financial management?
Agency theory describes members of business management as agents who serve the interests of the shareholders. Agents increase the value of the owners’ investment in return for which the owners reward the managers. In practice, agent and owner interests don’t always align.
What is agency theory in corporate governance?
Agency theory is used to understand the relationships between agents and principals. The agent represents the principal in a particular business transaction and is expected to represent the best interests of the principal without regard for self-interest.
Who propounded agency theory?
The agency theory was first introduced by Stephen Ross and Barry Mitnick in 1973 (Mitnick 2013 and is characterized through the conflict of interest between principal (owners) and agents (managers), known as an “agency problem”.
Who is the founder of agency theory?
What is the difference between agency theory and stakeholder theory?
Key Takeaways. The agency theory looks to outline the interests of a principal and an agent, which can include an individual and a financial planner. The stakeholder theory suggests there are differences between individual groups within an organization, such as the employees, investors, and suppliers.
What are the key points of agency theory?
Agency theory addresses disputes that arise primarily in two key areas: A difference in goals or a difference in risk aversion. Management may desire to expand a business into new markets, focusing on the prospect of short-term profitability and elevated compensation.
What are the two main theories of corporate governance?
Theories of corporate governance are rooted in agency theory with the theory of moral hazard implications, developing further within stewardship theory and stakeholder theory and evolving at resource dependence theory, transaction cost theory and political theory.
What is principal-agent theory in economics?
The principal-agent problem is a conflict in priorities between a person or group and the representative authorized to act on their behalf. An agent may act in a way that is contrary to the best interests of the principal. The principal-agent problem is as varied as the possible roles of principal and agent.