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Essay to Analyze Agency Costs, Managerial Behavior - Desklib

   

Added on  2020-05-16

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Running head: MANAGERIAL BEHAVIOR, AGENCY COSTS, OWNERSHIP STRUCTURETheory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure Name of the University:Name of the Student:Authors Note:

1MANAGERIAL BEHAVIOR, AGENCY COSTS, OWNERSHIP STRUCTUREIntroductionThere has been a current progress in the property rights, agency and finance theory inorder to develop an ownership structure theory for the company. In addition, the accountingtheories explain the determination of optimal capital structure, certain specifications regardingcredit agreements content, the theory of companies along with the supply side regardingcompleteness of markets problem (Agoglia et al. 2017). Considering the same, agency theory isdeemed to explain that an owner or the manager of the company attains mixed financial structurethat encompasses both debts along with equity claims. This facilitates in selecting activities setfor the company such that overall revenue of the company is less than it might be in case he wasthe only owner and the results are independent regardless of whether the company operateswithin competitive product or monopolistic markets (Baik et al. 2015). Agency theory alsoexplains a managers failure reasons in increasing the company value that is highly consistentwith efficiency. The objective of this essay is to analyze the agency costs, managerial behavioralong with ownership structure that will facilitate in explaining agency theory formal peerreviewed journal article. The article that is selected for this essay in explaining implication ofaccounting theories in the companies is “Theory of the Firm: Managerial Behavior, AgencyCosts, and Ownership Structure”.DiscussionThe article had an intention of developing an ownership structure theory for the companythat focuses on property rights theory, finance and agency theory (Beaudoin, Cianci andTsakumis 2015). The article also explained the agency cost concepts along with explaining therelationship among the control issue and separation and investigating the agency cost nature

2MANAGERIAL BEHAVIOR, AGENCY COSTS, OWNERSHIP STRUCTUREdeveloped by presence of outside equity and debt. Moreover, the article offered an innovativeexamination of the companies along with indicating their evaluation process of factors impactingthe insurance and generation of debt or equity. The article also explained that agency relationship is a contract within which one or moreindividuals (principal) gets involved with another person that is an agent in order to conductsome service on their behalf that encompass (Briamonte et al. 2017). This provides certaindecision making authority to the agent. In case the contractual parties within the relationship areutility maximizes there is a chance to consider that the agent might not always act towards thebest interests of the principal. The article also explained that the agency cost is addition ofresidual loss, bonding expenses by agent and supervising expenditures by principal. Agencytheory is followed in all companies with cooperative efforts at all the management levels in thecompanies within mutual companies, universities, cooperatives, within government authoritiesalong with unions. Devers and Sanders (2016) centered on the evaluation of agency costsdeveloped by the contractual agreements among the owners and the top management of thecompanies. It is anticipated that individuals deal with normative concerns considering that onlystocks and binds might be issued as claims and they investigate the incentives gathered by everycontractual party along with elements entering within equilibrium contractual form determinationfocusing on the associating among the manager (agent) of the company along with outside debtand equity holders (principals) (Dutta and Fan 2014). Agency Costs of EquityIf a totally owned company is managed by the entrepreneur, he can make operatingdecisions that can maximize its utility. The inclusion of outside equity might produce agency

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