Page info: *Author: Mathiesen, H. *Document version: 2.6. *Copyright 1997-2008, ViamInvest. Legal notice. 


Exhibition: The managerial agency problem

 

Introduction: In view of this figure corporate governance investigates how incentive mechanisms can help principals to get a return on their exchanges with the management. In terms of transaction cost economics, corporate governance deals with the institutions that may help to minimize the transaction costs of the managerial agency problem. Click here for alternative definitions.

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Examples of conditions, mechanisms and managerial transaction costs

 

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Transaction conditions

 

Incentive mechanisms

 

Managerial transaction costs

 

 

Environment conditions

·     Asymmetric information

·     Complexity / uncertainty

·     Difficulty in measuring

·     Asset specificity

·     Duration / frequency

 

Behavioral conditions

·     Opportunism

·     Bounded rationality

·     Risk aversion

 

 

 

·     Decision systems

·     Performance monitoring systems

·     Remuneration systems

·     Bankruptcy systems

·     Ownership structures

·     Creditor structures

·     Capital structures

·     Market for corporate control

·     Market for management services

·     Product market competition

 

·     Monitoring costs

·     Perquisite consumption

·     Pet projects

·     Free cash flow dispersion

·     Hampered capital access

·     Replacement resistance

·     Resistance to profitable liquidation or merger

·     Power struggles

·     Excessive risk taking

·     Self-dealing transfer pricing

·     Excessive diversification

·     Excessive growth

- Copyright 1997-2008, ViamInvest. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Legal notice.