Agency costs are costs related to actions taken by the agents on behalf of a principal. Incorporate setup, the agency costs are management remunerations, bonus schemes, and other benefits like stock options. Agency costs can include costs associated with any conflict of interests that might be present between principal and agent.
For example, the shareholders hire management executives to act in the best interest of all shareholders and maximize the profits. In order to motivate management, the shareholders announce that on successful achievement of management targets (grow sales by 200%) they will be awarded a bonus of 50%. Let’s say the sales grew by 300% but with a 150% promotional expenses increase as compared to last year. Now the shareholders have to sacrifice 200% of the sales value to compensate the managers as agency costs.
According to agency theory, the existence of debt imposes agency costs
What are the sources of agency costs of equity?
How does the existence of financial distress costs and agency costs affect
Suppose you decide (as did Steve Jobs and Mark Zuckerberg)
Background Woodhaven Service is a small, independent filling station located
Define the following: (a) Agency costs in capital
Which of the following statements most appropriately describes how agency costs affect
Monitoring alone can never completely eliminate agency costs in capital investment.
Which of the following are characteristic of principal-agent conflicts that
Read Barbarians at the Gate (Further Reading). What agency costs
