Please enable JavaScript.
Coggle requires JavaScript to display documents.
Agency Theory - Coggle Diagram
Agency Theory
-
Remedies
Debt
Increasing lvl of debt disciplines managers since the company should have strong fundamentals to get debt
-
-
labour mkt
Managers prove themselves for better remuneration and mkt estimates a managers ability from his past work
executive compensation
A periodic compensation revision and proper incentive package can motivate the managers to work harder for the better performance of the firm
Types
-
-
Principal - creditor
owners and creditors
Difference in attitude towards risk while owners are more risk taking creditors ted to be risk averse
Agency costs
Bonding
Cost incurred to set up and operate according to the defined system of the firm. Bonding and monitoring costs move in opposite ways
Residual loss
when inefficient managerial decisions lead to a loss. when the managers decisions are not aligned with the profit maximizing goal of the owner
Monitoring
coast associated with monitoring and assessing of agents performance. Payment for watching, compensating and evaluating agents behavior
-
-