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={Microeconomic Theory eJournal},
  year={1976}
}
  • Michael C. Jensen, William H. Meckling
  • Published 1976
  • Microeconomic Theory eJournal
  • 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 the costs and why, and investigate the Pareto optimality of their existence. We also provide a new… CONTINUE READING
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