The jensen and meckling 1976, hereinafter jm theory explains. Teori agensi jensen dan meckling 1976 menjelaskan hubungan keagenan di dalam teori agensi agency theory bahwa perusahaan merupakan kumpulan kontrak nexus of contract antara pemilik sumber daya ekonomis principal dan manajer agent yang mengurus penggunaan dan pengendalian sumber daya. The concept offers a solid introduction to the topic by evaluating its strengths and weaknesses and uses case study evidence to demonstrate how the theory has been applied in different industries and contexts. Managerial behavior, agency costs and ownership structure july 1, 1976. The modern literature on the problem dates back at least to berle and means 1932. Agency theory specifies mechanisms which reduce agency loss eisenhardt 1989. Agency theory is based on the problems related to sepa ration of ownership and controllability. Agency theory and stewardship theory are used to hypothesize about the relationship. Managerial behavior, agency costs and ownership structure jensen, m. Agency theory and ownership structure estimating the. Managerial behavior, agency costs and ownership structure agency costs of outside equity in this paper managerial behavior, agency costs and the ownership structure are modelled. A discussion of the suitability of only one vs more than. Jensen and meckling 4 1976 behavior as well as rejecting the more specific profitmaximizing model.
In barzel 1982s theory of the firm, drawing on jensen and meckling 1976, the firm emerges as a means of centralising monitoring and thereby avoiding costly redundancy in that function since in a firm the responsibility for monitoring can be centralised in a way that it cannot if production is organised as a group of workers each acting. The joint determination of capital structure and investment risk is examined. A discussion of the suitability of only one vs more than one. According to agency theory jensen and meckling, 1976, agency costs generally arise due to individuals selfinterest and decision making based on rational thinking and oriented. Managerial behavior, agency costs and ownership structure jensen m.
Jensen dan meckling 1976 menjelaskan hubungan keagenan di dalam teori agensi agency theory bahwa perusahaan merupakan kumpulan kontrak nexus of contract antara pemilik sumber daya ekonomis principal dan manajer agent yang mengurus penggunaan dan pengendalian sumber daya tersebut. Agency theory and its impact on corporate finance theory. Managerial behavior, agency costs and ownership structure, 3 j. Received january 1976, revised version received july 1976 this paper integrates elements from the theory of agency. The agency theory of corporate governance was put forward by alchian and demsetz 1972 and jensen and meckling 1976. Meckling 1922 may 15, 1998 was an american economist and professor of management and government policy and dean at the simon business school, university of rochester, working in the areas of managerial economics and the economic analysis of law, and his work received international recognition source. Meckling university of rochester, rochester, ny 14627, u. In agency theory terms, the owners are principals and the managers are agents and there is an agency loss which is the extent to which returns to the residual claimants, the owners, fall below what they would be if the principals, the owners, exercised direct control of the corporation jensen and meckling 1976. While the literature of economics is replete with references to the theory of the firm, the material generally subsumed under that heading is not actually a theory of the firm but rather a theory of markets in which firms are important actors. Agency theory for the first time appeared in literature in 70s years at the works of ross 1973, jensen and meckling 1976. Managerial behavior, agency costs and ownership structure author links open overlay panel michael c. We define the concept of agency costs, show its relationship to the separation.
Agency theory is a useful framework for designing governance and controls in organisations. View citations in econpapers 7595 track citations by rss feed. Jensen and mecklings famous article on agency costs analyzed by tero luoma. Volume 3, issue 4, october 1976, pages 305360 theory of the firm.
Jensen meckling agency theory presentation luoma slideshare. At that time the corporate governance researches were largely focused on governance matters related to u. Nov 15, 2017 in agency theory, there is an analysed relationship that conceptualizes between shareholder principal and manager agent when there is a delegation of activity jensen and meckling, 1976. The conceptual domain of agency theory is one of the dominant organisational theory perspectives applied in current family business research chrisman et al. Specific and general knowledge and organizational structure michael c.
The principals challenge is to realize the benefits of cooperation with agents while minimizing the. Managerial behavior, agency costs and ownership structure jensen and meckling, jfe, 1976 about 3400. Rooted in economics, agency theory suggests that agents will choose opportunistic selfinterested. Jensen and meckling were two famous researchers who introduced agency problem under agency theory in 1976 and started new research domain of corporate governance jensen and meckling, 1976. Evaluating the effect of ownership structure on firm. Managerial behavior, agency costs and ownership structure. Optimal capital structure reflects both the tax advantages of debt less default costs modiglianimiller, and the agency costs resulting from asset substitution jensenmeckling. Jensen and meckling 1976 describe three core sources of agency costs. Agency costs restrict leverage and debt maturity and increase yield spreads, but their importance is relatively.
Jensen and his coauthor, william meckling, received the first leo melamed prize for outstanding scholarship by business school teachers from the university of chicagos graduate school of business in march, 1979 for their paper, theory of the firm. Agency theory explains how principals efficiently organize exchanges with agents by employing mechanismsincentive alignment and monitoringin appropriate combinations eisenhardt, 1989. Agency theory also known as the principalagent or principal agency theorymodel describes the relationship between two or more parties, in which one party, designated as the principal, engages another party, designated as the agent, to perform some task on behalf of the principal jensen and meckling, 1976. Professor michael jensen of the harvard business school and the late professor william meckling of the simon school of business, university of rochester wrote an influential paper in 1976 titled theory of the firm. Managerial behavior, agency costs and ownership structure jensen and meckling 1976 presentation by emma xu and michael farrell october 12 2015. Nevertheless, these policies are to ensure that managers perform their duties diligently in the best interest of their principals. Agency theory as a framework for higher education governance. Teori agensi jensen dan meckling 1976 menjelaskan hubungan keagenan di dalam teori agensi agency theory bahwa perusahaan merupakan kumpulan kontrak nexus of contract antara pemilik sumber daya ekonomis principal dan manajer agent yang mengurus penggunaan dan pengendalian sumber daya tersebut. The literature outlines ways in which the agent can act against the wishes of the principal, ways in which the principal can control the agents activities and the cost of this control, known as agency costs.
Jun 24, 2014 background of agency theory at berle and means 1932. Managerial behavior, agency costs and ownership structure by michael c. Agency theory revolves around the issue of the agency problem and its solution. Managerial behavior, agency costs, and ownership structure. Background of agency theory at berle and means 1932. One one particular issue of why this theory emerged is that the 1970s, like the 1930s, saw a steep decline. Specifically, it addresses this relationship from a behavioral and a structural perspective. Jensens and mecklings 1976 model shows that agency problems exist, when there. Agency theory and stakeholder theory compared business. We retain the notion of maximizing behavior on the part of all individuals in the analysis that follows. This theory gradually enforced not only in economic scientific disciplines but even in sociology and politics.
They argued that firms can be regarded as a nexus for a set of contracting relationships among individuals, whereas classical economics regards firms as singleproduct entities with the purpose of maximizing profit. Managerial behavior, agency costs and ownership structure, journal of financial economics 3 1976 305360. Their starting points were transaction costs, asymmetric information, moral hazard and adverse selection. In agency theory, there is an analysed relationship that conceptualizes between shareholder principal and manager agent when there is a delegation of activity jensen and meckling, 1976. It has also become the dominant theoretical framework for academic research on executive compensation bratton, 2005. Jensen and meckling 5 defined the agency problem as problem that arises when one party principals makes contract with another party agents aiming to make decisions on be half of the principals. The key insight of jensen and meckling 1976 was to model the relationship between own ers and managers similar to one between a principal and an agent.
Managerial behavior, agency costs and ownership structure jensen. Agency theory and stewardship theory integrated, expanded. This paper integrates elements from the theory of agency, the theory of. Jensen and meckling 1976 quote from adam smith 1776. Jensen meckling 1976 principal agent capital structure. An agency cost is an economic concept concerning the fee to a principal an organization, person or group of persons, when the principal chooses or hires an agent to act on its behalf. As noted by imam and malik 2007, the framework of corporate governance is an important control mechanism because it encourages the. Agency costs and ownership structure the seminal contributions of jensen and meckling 1976 on agency costs have called into attention the social and private costs of an agents actions due to. The agency theory approach to the public procurement system. Managerial behavior, agency costs and ownership structure author links open overlay panel. Agency theory also known as the principalagent or principal agency theory model describes the relationship between two or more parties, in which one party, designated as the principal, engages another party, designated as the agent, to perform some task on behalf of the principal jensen and meckling, 1976. Smith 1937 to berle and means 1932 and jensen and meckling 1976.
Managers can take actions to improve their personal wellbeing, rather than trying to maximize the market value. In separation of ownership and control fama and jensen, 1983, we argue that this agency problem is 5 see, for example, fama 1978. For the last forty years, the problem of agency costs has dominated the study of corporate law and governance. Governance, residual claims and organizational forms, harvard university press, december 2000, journal of financial economics jfe, vol. Alexander pepper and julie gore behavioral agency theory. 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. Agency costs, risk management, and capital structure. Broadly, agency theory is about the relationship between two parties, the principal and the agentmanager eisenhardt, 1989. Agency theory is the starting point for this analysis. Optimal capital structure reflects both the tax advantages of debt less default costs modiglianimiller, and the agency costs resulting from asset substitution jensen meckling. Agency theory jensen and meckling based on agency theory, it is known that the interests of the leaders of the companys management is different from the interests of shareholders. Because the two parties have different interests and the agent has more information, the principal cannot directly ensure that its agent is always acting in its the principals best.
Agency costs and ownership structure the seminal contributions of jensen and meckling 1976 on agency costs have called into attention the social and. Received january 1976, revised version received july 1976. The starting point for the analysis is the agency theory by jensen and meckling 1976, which predicts that higher levels of managerial ownership structure. As noted by imam and malik 2007, the framework of corporate. Recent research has demonstrated that agency assumptions, which ad dress possible disparity between the interests of the. Agency costs and theory, internal control systems, conflicts of interest, capital structure, internal equity, outside equity, demand for security analysis, completeness of markets, supply of claims, limited liability. This paper integrates elements from the theory of agency. Agency theory has been a major component of the economic theory of the firm since the publication of formative work by spence and zeckhauser 1971, alchian and demsetz 1972, ross 1973 and jensen and meckling 1976. Specific and general knowledge and organizational structure.