Lenders (banks and bond holders) ➜ payment of interest and repayment of capital on time
Other stakeholders
Board of Directors (executive and non-executive directors)
Management (CEO)
Employees
Major suppliers
Government
General public
Agency theory developed by Jensen and Meckling in 1976.
Agency theory developed by Jensen and Meckling in 1976.
Agency relationship is a form of contract between shareholders and managers, owners are principal and managers are agent.
Corporate governance theories
Agency conflict
Moral hazard
Level of effort
Earnings retention
Time horizon
Agency costs
Cost of monitoring
Bonding costs
Residual loss
Agency theory is based on the view that the system of corporate governance should be designed to minimize the agency problem and to reduce agency cost by improving the monitoring of management and/or providing management with incentives to bring their interests closer to those of the shareholders.
Corporate governance theories
Corporate governance theories
Stakeholder theory
The theory states that a company owes a responsibility to wider group of stakeholders, other than just shareholders.
Example: Costco runs their business according to the stakeholder theory;
they put everyone that contributes in the operation of the company, the stakeholders, ahead of their shareholders.
Compared to the industry average of 23% of employees having insurance coverage, Costco covers 85% of their employees.
