Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure

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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 focus in this paper on the behavioral implications of the property rights specified in the contracts between the owners and managers of the firm. The possibility of monitoring the behavior of the company by means of review of controls has stayed aside in this analysis. In the activity they can use resources for changing the opportunity that the owner possesses to receive the not pecuniary benefits, these activities consist of the budgetary restrictions, audits, formal systems of control, creation of measures of compensation of incentives that serve to join the interests of the manager with those of the external shareholders. In the examples it is possible to observe that a budgetary restriction derives in the possibilities of control this one has, the account also shows that the different shareholders of the company can restrict the consumption of the manager to low quantities of F '. The value of the company is given by V = V - F (M, a) - M and the location of these points for the different levels of M and for a given level spreads in the AEC. The vertical inequality between the FV and curves ECB is M showing the current value of market of the expenses in the future. The increase in the value of the signature that is joined is observed in the wealth of the owner, but his well being was rising in less this, because he was stopping receiving the not pecuniary benefits that before he was enjoying.

Fig. 3. The value of the firm (V) and level of non-pecuniary benefits (F) when outside equity is (1-α), U1, U2, U3 represent owner’s indifference curves between wealth and non-pecuniary benefits, and monitoring (or bonding) activities impose opportunity set BCE as the tradeoff constraint facing the owner. In the study of the expenses of union relevancy does not have the control of the...
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