Amy hillman, michael withers, and brian collins(2009) resource dependence the...Yassin Boullauazan
Thirty years have passed since Pfeffer and Salancik’s seminal work on resource dependence theory (RDT). During this time RDT has been applied broadly across the research domain to explain how organizations reduce environmental interdependence and uncertainty. In this review, the authors assess the conceptual development, empirical research, and application of RDT. They structure their review around the five options that Pfeffer and Salancik propose firms can enact to minimize environmental dependences: (a) mergers/vertical integration, (b) joint ventures and other interorganizational relationships, (c) boards of directors, (d) political action, and (e) executive succession.The authors summarize past work, synthesize contemporary thought, and propose future research directions.
Hillman, A. J., Withers, M. C., & Collins, B. J. (2009). Resource dependence theory: A review. Journal of management, 35(6), 1404-1427.
Amy hillman, michael withers, and brian collins(2009) resource dependence the...Yassin Boullauazan
Thirty years have passed since Pfeffer and Salancik’s seminal work on resource dependence theory (RDT). During this time RDT has been applied broadly across the research domain to explain how organizations reduce environmental interdependence and uncertainty. In this review, the authors assess the conceptual development, empirical research, and application of RDT. They structure their review around the five options that Pfeffer and Salancik propose firms can enact to minimize environmental dependences: (a) mergers/vertical integration, (b) joint ventures and other interorganizational relationships, (c) boards of directors, (d) political action, and (e) executive succession.The authors summarize past work, synthesize contemporary thought, and propose future research directions.
Hillman, A. J., Withers, M. C., & Collins, B. J. (2009). Resource dependence theory: A review. Journal of management, 35(6), 1404-1427.
Youtube Video Link -
https://youtu.be/dx28fuD_D4w
Stewardship Theory, developed by Donaldson and Davis focuses on understanding the existing relationships between ownership and management of the company.
Under Stewardship theory managers are considered as Stewards which means someone who is responsible to protect and act in the best interest of shareholders.
It is opposite to agency theory which mentions the conflict of interest between managers and shareholders.
Managers are considered as committed to business, responsible, working towards accomplishment of mission and vision of organization.
They are the one who brings out collectivism in organization and align everyone’s objective for the growth of business.
Focuses on recognizing various groups in organization and empowers them with motivation and delegation of work.
Balances all stakeholders and add significant value to organization reputation.
There exist a strong relationship between managers and success of the company.
Stewards tries to maximize shareholders wealth by constantly increasing profitability and efficiency of business.
More control and restrictions over managers may lower their motivation and hence turn them out unproductive since they take most of the strategic decisions for growth of business in long run.
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Presentation provides an overview of the theoretical concepts in corporate governance, few definitions, methods to measure it and a brief overview of recent developments in corporate governance in the Caribbean.
Youtube Video Link -
https://youtu.be/dx28fuD_D4w
Stewardship Theory, developed by Donaldson and Davis focuses on understanding the existing relationships between ownership and management of the company.
Under Stewardship theory managers are considered as Stewards which means someone who is responsible to protect and act in the best interest of shareholders.
It is opposite to agency theory which mentions the conflict of interest between managers and shareholders.
Managers are considered as committed to business, responsible, working towards accomplishment of mission and vision of organization.
They are the one who brings out collectivism in organization and align everyone’s objective for the growth of business.
Focuses on recognizing various groups in organization and empowers them with motivation and delegation of work.
Balances all stakeholders and add significant value to organization reputation.
There exist a strong relationship between managers and success of the company.
Stewards tries to maximize shareholders wealth by constantly increasing profitability and efficiency of business.
More control and restrictions over managers may lower their motivation and hence turn them out unproductive since they take most of the strategic decisions for growth of business in long run.
Thank you for Watching
Subscribe to DevTech Finance
Presentation provides an overview of the theoretical concepts in corporate governance, few definitions, methods to measure it and a brief overview of recent developments in corporate governance in the Caribbean.
Unit 1 Introduction to Corporate Governance
Unit 2 Theory of the Firm
Unit 3 Corporate Governance and the Role of Law
Unit 4 Corporate Governance Around the World
Unit 5 Board Composition and Control
Unit 6 CEO Compensation
Unit 7 International Governance
Unit 8 Overview of Corporate Governance Codes
Explain the concepts of stake and stakeholder from your perspective .pdfrastogiarun
Explain the concepts of reliability and validity. As part of your explanation, describe ways that
reliability and validity can be measured. The information may come from more than one chapter.
Solution
Reliability and validity are used for testing or measuring something. For instance, if an english
test a candidate for an employment has made is valid, it indicates that the test measures english
knowledge in people who present it. The reliability concept is used to tell if the same candidate
presents several times the same test, the results would be almost the same. Who may garantee us
that the same person could pass the same test again if he has the chance to present it? That would
make the test reliable, or not reliable.
Broader definitios are given:
Reliability: a test is reliable when it measures what it claims to measure, i.e., if a person present
the test several times, the results should be almost the same, for it measures a characteristic of a
person, which is not meant to change in a short period of time.
Factors to consider when assessing if a test is reliable.
To measure reliability, a correlation coefficient could be used, a test taker presents the same test
several times, and the ratings got are correlated so as to see if there is any change in the final
rating or not. It is statistically measurable, and could be done with several people making the
same test several times, so as to build a robust correlation coefficient.
Validity: the validity of a test tells us if it measures what it claims to. Validity gives you meaning
to the test scores, the relations between the qualities measured in the test with the job
qualifications and requierements, and tells you which conclusions you can draw from the score
of a test and to what degree you can draw them.
To measure validity is more complex, though, a great ampount of data would be of use to
determine if a test is valid or not for measuring a given characteristic of a person, that is why it is
better to use proved methods (valid methods) of measuring a characteristic, as a measure of
validity of the test.
See more on this webpage: http://www.hr-guide.com/data/G362.htm.
This research investigates the determinants of the capital structure of firms listed service sector on BIST(Borsa Istanbul) and the adjustment process towards this target. The econometric analysis employs the Generalized Method of Moments estimators (GMM-Sys, GMM difference) techniques that controls for unobserved firm-specific effects and the endogeneity problem. The findings of the paper suggest that firms have target leverage ratios and they adjust to them relatively fast. Consistent with the predictions of capital structure theories and the findings of the empirical literature, the results of this paper suggest that size, assets tangibility, profitability, growth opportunity except earnings volatility have significant effects on the capital structure choice of hotels and restaurants.The capital structure or leverage is measured by total debt ratio. Analysis results indicates that firms with high profits, sizable, high fixed assets ratio and high total sales and more growth opportunities tend to have relatively less debt in their capital structures.
Capital Structure Determination, a Case Study of Sugar Sector of Pakistan Fa...inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online
Näkökulmia siitä, millaisiin omistajiin kannattaa sijoittaa. Taaleri Pääomarahastot Oy:n sijoitusjohtaja Tero Luoman esitys Sijoitusmessuilla 8.5.2018. #omistajuus #sijoittaminen
Hallituksen ja toimitusjohtajan suhde ei aina ole mutkaton. Kumpi vie kumpaa? Mitä jos toimitusjohtaja onkin vahvempi ja vie heikompaa hallitusta?
Tässä on luokiteltu 10 tyyppitapausta käytännön tilanteista, joissa hallitus voi olla heikoilla.
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
Empowering the Unbanked: The Vital Role of NBFCs in Promoting Financial Inclu...Vighnesh Shashtri
In India, financial inclusion remains a critical challenge, with a significant portion of the population still unbanked. Non-Banking Financial Companies (NBFCs) have emerged as key players in bridging this gap by providing financial services to those often overlooked by traditional banking institutions. This article delves into how NBFCs are fostering financial inclusion and empowering the unbanked.
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
1. Jensen, Michael C., and William Meckling,
“Theory of the Firm: Managerial Behavior, Agency Costs and
Ownership Structure,”
Journal of Financial Economics 3 (1976) 305-360.
2. Background
• The article’s meaning to the theory of finance and academia
– Jensen & Meckling (1976) is one of the classics in the field of
finance. It’s one of the most cited articles in finance, cited 37 893
times (June 2013).
– It brought in a new concept “agency theory” and still today many
studies in finance, corporate governance and organization theory
use this theory framework.
– In general, the paper is known for highlighting the conflict of
interest between principals and agents. Typically, this is linked to
relationship between owners and managers.
– Nowadays agency theory is also criticized for it’s narrow and
mostly negative view of actor relationships.
3. Overview
• The Content of the Article:
1. Introduction
2. The Agency Cost of Outside Equity
3. Some unanswered questions regarding the existence of the
corporate form
4. The Agency Cost of Debt
5. A Theory of Corporate Ownership Structure
6. Qualifications and extensions of the analysis
7. Conclusions
4. The Key Dilemma – Other People’s Money
• Economics is just side remarks to ideas presented by Adam
Smith:
– The directors of such [joint-stock] companies, however, being the
managers rather of other people’s money than of their own, it
cannot well be expected, that they should watch over it with the
same anxious vigilance with which the partners in a private
copartnery frequently watch over their own. Like the stewards of
a rich man, they are apt to consider attention to small matters as
not for their master’s honour, and very easily give themselves a
dispensation from having it. Negligence and profusion, therefore,
must always prevail, more or Iess, in the management of the
affairs of such a company.
– The Wealth of Nations, 1776, Cannan Edition (Modern Library,
New York, 1937) p. 700.
5. Objectives
• Objectives:
– 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 define the concept of agency costs, show its relationship to
the ‘separation and control’ issue, investigate the nature of the
agency costs generated by the existence of debt and outside
equity, demonstrate who bears these costs and why, and
investigate the Pareto optimality of their existence.
– We also provide a new definition of the firm, and show how our
analysis of the factors influencing the creation and issuance of
debt and equity claims is a special case of the supply side of the
completeness of markets problem.
6. Motivation of the paper
• The theory helps explain:
1. why an entrepreneur or manager in a firm which has a mixed financial
structure (containing both debt and outside equity claims) will choose a set of
activities for the firm such that the total value of the firm is Iess than it would
be if he were the sole owner and why this result is independent of whether
the firm operates in monopolistic or competitive product or factor markets;
2. why his failure to maximize the value of the firm is perfectly consistent with
efficiency;
3. why the sale of common stock is a viable source of capital even though
managers do not literally maximize the value of the firm;
4. why debt was relied upon as a source of capital before debt financing offered
any tax advantage relative to equity;
5. why preferred stock would be issued;
7. Motivation of the paper (2)
• The theory helps explain:
5. why preferred stock would be issued;
6. why accounting reports would be provided voluntarily to creditors and stockholders,
and why independent auditors would be engaged by management to testify to the
accuracy and correctness of such reports;
7. why lenders often place restrictions on the activities of firms to whom they lend, and
why firms would themselves be led to suggest the imposition of such restrictions;
8. why some industries are characterized by owner-operated firms whose sole outside
source of capital is borrowing;
9. why highly regulated industries such as public utilities or banks will have higher debt
equity ratios for equivalent levels of risk than the average non-regulated firm;
10. why security analysis can be socially productive even if it does not increase portfolio
returns to investors.
8. Literature review – theory of the firm
• Theory of the firm: An empty box?
– “Theory of the firm” is not a theory of the firm but actually a theory of markets in
which firms are important actors. The firm is a “black box” operated so as to meet
the relevant marginal conditions with respect to inputs and outputs.
– We have no theory which explains how the conflicting objectives of the individual
participants are brought into equilibrium so as to yield this result. The limitations
of this black box view of the firm have been cited by Adam Smith and Alfred
Marshall, among others.
– Refers to reviews of managerial behavior studies made by Machlup (1961) and
Alchian (1965).
– “Simon (1955) developed a model of human choice incorporating information
(search) and computational costs which also has important implications for the
behavior of managers. Unfortunately, Simon’s work has often been misinterpreted
as a denial of maximizing behavior, and misused.”
– Meckling (1976) for a discussion of the fundamental importance of the assumption
of resourceful, evaluative, maximizing behavior on the part of individuals in the
development of theory.
– Klein (1976) takes an approach similar to the one we embark on in this paper in his
review of the theory of the firm and the law.
9. Literature review – property rights
• Property rights:
– Links to well-known property right researchers like Coase (1937, 1959, 1960).
Alchian (1965, 1968), Alchian and Kessel (1962). Demsetz (1967), Alchian and
Demsetz (1972), Monsen and Downs (1965), Silver and Auster (1969), and
McManus (1975).
– Property rights are human rights, i.e., rights which are possessed by human beings.
– Focus in this paper on the behavioral implications of the property rights specified
in the contracts between the owners and managers of the firm.
10. Literature review – agency costs
• Agency costs:
– agency costs arise in any situation involving cooperative effort (such as
the co-authoring of this paper) by two or more people even though there
is no clear cut principal-agent relationship.
– The normative aspects of the agency relationship; that is how to structure
the contractual relation (including compensation incentives) between the
principal and agent to provide appropriate incentives for the agent to
make choices which will maximize the principal’s welfare given that
uncertainty and imperfect monitoring exist.
– The positive aspects of the theory. That is, we assume individuals solve
these normative problems and given that only stocks and bonds can be
issued as claims, we investigate the incentives faced by each of the parties
and the elements entering into the determination of the equilibrium
contractual form characterizing the relationship between the manager
(i.e., agent) of the firm and the outside equity and debt holders (i.e.,
principals).
11. The definition of the firm
• The firm as a nexus of contracts:
– Alchian and Demsetz (1972) define the classical capitalist firm as a contractual
organization of inputs in which there is ‘(a) joint input production, (b) several input
owners, (c) one party who is common to all the contracts of the joint inputs, (d)
who has rights to renegotiate any input’s contract independently of contracts with
other input owners, (e) who holds the residual claim, and (f) who has the right to
sell his contractual residual status.
– The private corporation or firm is simply one form of legal fiction which serves as a
nexus for contracting relationships and which is also characterized by the
existence of divisible residual claims on the assets and cash flows of the
organization which can generally be sold without permission of the other
contracting individuals
– Viewing the firm as the nexus of a set of contracting relationships among
individuals also serves to make it clear that the personalization of the firm implied
by asking questions such as “what should be the objective function of the firm”, or
“does the firm have a social responsibility” is seriously misleading. The firm is not
an individual. It is a legal fiction which serves as a focus for a complex process in
which the conflicting objectives of individuals (some of whom may “represent”
other organizations) are brought into equilibrium within a framework of
contractual relations. In this sense the “behavior” of the firm is like the behavior of
12. Definitions
• Agency relationship and the conflict of interests:
– We define an agency relationship as a contract under which one or more persons (the
principal(s)) engage another person (the agent) to perform some service on their
behalf which involves delegating some decision making authority to the agent.
– If both parties to the relationship are utility maximizers there is good reason to believe
that the agent will not always act in the best interests of the principal.
13. Definitions (2)
• Agency costs
– The principal can limit divergences from his interest by establishing
appropriate incentives for the agent and by incurring monitoring costs
designed to limit the aberrant activities, of the agent.
– In addition in some situations it will pay the agent to expend resources
(bonding costs) to guarantee that he will not take certain actions which would
harm the principal or to ensure that the principal will be compensated if he
does take such actions.
– However, it is generally impossible for the principal or the agent at zero cost
to ensure that the agent will make optimal decisions from the principal’s
viewpoint.
• Agency costs are the sum of:
1. the monitoring expenditures by the principal,
2. the bonding expenditures by the agent,
3. the residual loss.
14. Data and methodology
• There is no data in theoretical methodology
– This is a theoretical article aiming at developing new theories.
Due to this character, there is no data used.
– Theories are developed by using mathematic models in order
to present and generalize the authors’ ideas.
15. Model assumptions
• Permanent assumptions
1. All taxes are zero.
2. No trade credit is available.
3. All outside equity shares are non-voting.
4. No complex financial claims such as convertible bonds or preferred stock
or warrants can be issued.
5. No outside owner gains utility from ownership in a firm in any way other
than through its effect on his wealth or cash flows.
6. All dynamic aspects of the multiperiod nature of the problem are
ignored by assuming there is only one production-financing decision to
be made by the entrepreneur.
7. The entrepreneur-manager’s money wages are held constant
throughout the analysis.
8. There exists a single manager (the peak coordinator) with ownership
interest in the firm.
16. Model assumptions (2)
• Temporary assumptions
1. The size of the firm is fixed.
2. No monitoring or bonding activities arc possible.
3. No debt financing through bonds, preferred stock, or personal
borrowing (secured or unsecured) is possible.
4. All elements of the owner-manager’s decision problem involving
portfolio considerations induced by the presence of uncertainty and the
existence of diversifiable risk are ignored.
17. Owner-managers choices and the value of the firm
Owner-manager and investors:
•When the owner-manager sells (1-
α): investors will pay (1-α)V* if
they didn’t know the manager
consumes perks of F0
and the real
firm value is V0
now. The manager
moves along V1P1 (slope = - α) and
he gets up to a higher indifference
curve with equilibrium point A.
•If the investor expects the owner-
manager’s consumption of perks,
the manager could only move
along the true budget line (V-bar
F), so B is the equilibrium point.
V2P2 represents the tradeoff
between the firm value and
manager’s non-pecuniary benefits
after selling (1-α).
18. Determination of the optimal scale of the firm
Theorem:
•For a claim on the firm of (1 -a) the outsider will pay only (1 - Z) times the value he
expects the firm to have given the induced change in the behavior of the owner-
manager.
19. Determination of the optimal ratio of
outside equity to debt
Inside and Outside Equity and Debt:
•For a given size firm theory
determinates three variables:
– Si : inside equity (held by the
manager),
– s0 : outside equity (held by
anyone outside of the firm),
– B : debt (held by anyone
outside of the firm).
•The total market value of the
equity is S = Si + S0, and the total
market value of the firm is V = S+
B.
20. Key Findings / Results
• Agency costs are non-zero
– Finding that agency costs are non-zero (i.e., that there are costs associated with
the separation of ownership and control in the corporation).
– The size of the divergence (the agency costs) will be directly related to the cost of
replacing the manager.
– The existence and size of the agency costs depends on the nature of the
monitoring costs, the tastes of managers for non-pecuniary benefits and the
supply of potential managers who are capable of financing the entire venture out
of their personal wealth. If monitoring costs are zero, agency costs will be zero or if
there are enough 100 percent owner-managers available to own and run all the
firms in an industry (competitive or not) then agency costs in that industry will also
be zero.
– The agency costs associated with debt consist of:
1. the opportunity wealth loss caused by the impact of debt on the investment
decisions of the firm,
2. the monitoring and bonding expenditures by the bondholders and the
owner-manager (i.e., the firm),
3. the bankruptcy and reorganization costs.
21. Conclusions
• Objectives and results
– Jensen and Mecking’s article is not just about agency costs, as it is mostly known.
It’s a highly interesting theoretical article about the theory of the firm and
ownership aspect of the firm.
– Although the paper is one of the most cited articles of finance, it still needs more
in-depth analysis to be understood right.
– It’s objectives were:
• To integrate 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. (IT DID)
• Define the concept of agency costs, show its relationship to the ‘separation
and control’ issue, investigate the nature of the agency costs generated by the
existence of debt and outside equity, demonstrate who bears these costs and
why, and investigate the Pareto optimality of their existence. (IT DID)
• Provide a new definition of the firm, and show how our analysis of the factors
influencing the creation and issuance of debt and equity claims is a special
case of the supply side of the completeness of markets problem. (ID DID)
22. Discussion
• Some thoughts to be discussed
– Why dispersed ownership and limited liability shareholding have won the market
test although looking from the agency theory perspective it is not an optimal
ownership structure?
– What is the positive side of agency costs? Where should we balance these costs?
What are “agency revenues”?
– Is it so, that relationship between actors and voluntary co-operation is “a zero sum
game” or is it perhaps “a win-win situation”? – Ludwig von Mises, Human Action
– Self-interest vs altruism – objectivism by Ayn Rand?
– “Greed, for lack of a better word, is good. Greed is right. Greed works. Greed
clarifies, cuts through, and captures, the essence of the evolutionary spirit. Greed,
in all of its forms; greed for life, for money, for love, knowledge, has marked the
upward surge of mankind and greed, you mark my words, will not only save Teldar
Paper, but that other malfunctioning corporation called the U.S.A” – Gordon
Gekko