Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure

@article{Jensen1976TheoryOT,
  title={Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure},
  author={Michael C. Jensen and William H. Meckling},
  journal={Social Science Research Network},
  year={1976}
}
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… Expand
View via Publisher
business.illinois.edu
53,278 Citations
Highly Influential Citations
3,430
Background Citations
19,049
Methods Citations
1,384
Results Citations
992

Figures from this paper

53,278 Citations

Citation Type

Citation Type

THEORY OF THE FIRM: MANAGERIAL BEHAVIOR, AGENCY COSTS AND OWNERSHIP STRUCTURE
In this paper we draw on recent progress in the theory of (1) property rights, (2) agency, and (3) finance to develop a theory of ownership structure for the firm.1 In addition to tying together… Expand
Ownership structure, value of the firm and the bargaining power of the manager
In their seminal article, Michael Jensen and William Meckling developed a theory of the corporate ownership structure that took into account "the trade-offs available to the entrepreneur-manager… Expand
Agency Problems and the Theory of the Firm
  • E. Fama
  • Journal of Political Economy
  • 1980
This paper attempts to explain how the separation of security ownership and control, typical of large corporations, can be an efficient form of economic organization. We first set aside the… Expand
Agency Problems and the Theory of the Firm
This paper attempts to explain how the separation of security ownership and control, typical of large corporations, can be an efficient form of economic organization. We first set aside the… Expand
Problems and the Theory of the Firm Author ( s ) :
Legal analysis of Agency Theory: an inquiry into the nature of corporation
Purpose – The purpose of this paper is to analyse the Agency Theory in order to understand the true nature of the corporation by determining the respective roles of shareholders and… Expand
The Role of Options in the Resolution of Agency Problems: A Comment
THE AIM OF THE contracting literature in economics is to explain observed contractual arrangements, or organizations, as minimizing the costs of incentive conflicts. In the agency cost literature of… Expand
The Determinants Of Equity Based Compensation: A Bidimensional Validity Of The Agency Theory
Previous studies have tried to make a comparative analysis between the market-oriented system and the mixed governance system on the determinants of stock option awards for managers; however, these… Expand
Ownership matters: private equity and the political division of ownership
This article returns to the issue of how ownership matters. It does so by developing a critique of the ‘advantage-value-return’ framework of assumptions about value creation from the product market,… Expand
AGENCY THEORY, OWNERSHIP STRUCTURE AND CAPITAL STRUCTURE: AN EMPIRICAL INVESTIGATION IN THE INDIAN AUTOMOBILE INDUSTRY
Capital structure is not only the result of the various financial characteristics of the firm but is also determined by the decision makers. The study from the perspective of the Agency Theory,… Expand
...
1
2
3
4
5
...

References

SHOWING 1-10 OF 94 REFERENCES
The Cost of Capital, Corporation Finance and the Theory of Investment
The potential advantages of the market-value approach have long been appreciated; yet analytical results have been meager. What appears to be keeping this line of development from achieving its… Expand
The Economic Theory of Agency: The Principal's Problem
The relationship of agency is one of the oldest and commonest codified modes of social interaction. We will say that an agency relationship has arisen between two (or more) parties when one,… Expand
The Nature of the Firm
Economic theory has suffered in the past from a failure to state clearly its assumptions. Economists in building up a theory have often omitted to examine the foundations on which it was erected.… Expand
THEORIES OF THE FIRM: MARGINALIST, BEHAVIORAL, MANAGERIAL
This chapter discusses the theories of the firm. The program of behaviorism is to reject preconceptions and assumptions and to rely only on observation of overt behavior. Thus, behaviorism rejects… Expand
The Theory of the Growth of the Firm
A Behavioral Theory of the Firm.
PRIVATE PROPERTY AND DISPERSION OF OWNERSHIP IN LARGE CORPORATIONS
BERLE AND MEANS [13] long ago noted the increasing diffusion of ownership in large American corporations and concluded that control was shifting from the stockholders to the managers. Since then, the… Expand
WEALTH, WELFARE, AND THE PRICE OF RISK
IN THE THEORY of business finance, the most commonly advocated criterion for corporate investment is that such investment (and its associated financing) should be undertaken if and only if it serves… Expand
Corporate Investment under Uncertainty and Pareto Optimality in the Capital Markets
Within the context of a mean-variance equilibrium model of the pricing of capital assets, this paper investigates the allocation of investment in new risky opportunities which results from the… Expand
On the Theory of Optimal Investment Decision
This article is an attempt to solve (in the theoretical sense), through the use of isoquant analysis, the problem of optimal investment decisions (in business parlance, the problem of capital… Expand
...
1
2
3
4
5
...