INTBUS 6 Lecture Notes - Lecture 4: Substitute Good, Indifference Curve, Rational Expectations
5 Oct 2020
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Agency cost and ownership structure: combination of theory of property rights, agency, finance to develop a theory of ownership structure" for the firm. Property rights: specification of individual rights determines how costs and rewards will be allocated among participants in any organization, specification of rights is generally effected through contracting. Individual behaviour of the firm & manager will depend on the nature of these contracts. Agency cost: agency relationship 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. The agency cost of outside equity: effect of outside equity on agency costs comparing the behaviour of a manager when he owns 100 percent of firm to his behaviour when he sells off a portion. If the owner sells the entire equity but remains as manager.
