Abstract

http://ssrn.com/abstract=173461
 
 

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Stockholder, Manager, and Creditor Interests: Applications of Agency Theory


Michael C. Jensen


Harvard Business School; Social Science Electronic Publishing (SSEP), Inc.; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Clifford W. Smith Jr.


Simon Graduate School of Business, University of Rochester

July 1, 1985

Theory of the Firm (Book), Vol. 1, No. 1, 2000

Abstract:     
We review some of the recent work in agency theory that has implications for the structure of the corporation, in particular the resolution of conflicts of interest among stockholders, managers, and creditors. We analyze the nature of residual claims and the separation of management and risk bearing in the corporation. This analysis provides a theory based on trade-offs of the risk sharing and other advantages of the corporate form with its agency costs to explain the survival of the corporate form in large-scale, complex, nonfinancial activities. We then discuss the structure of corporate bond, lease, and insurance contracts, and show how agency theory can be used to analyze contractual provisions for monitoring and bonding to help control the conflicts of interest between these fixed claimholders and stockholders.

Number of Pages in PDF File: 46

Keywords: agency theory, conflicts of interest, residual claims, bond contracts, lease contracts, insurance contracts, claimholders, stockholders

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Date posted: October 11, 2000 ; Last revised: February 26, 2013

Suggested Citation

Jensen, Michael C. and Smith, Clifford W., Stockholder, Manager, and Creditor Interests: Applications of Agency Theory (July 1, 1985). Theory of the Firm (Book), Vol. 1, No. 1, 2000. Available at SSRN: http://ssrn.com/abstract=173461 or http://dx.doi.org/10.2139/ssrn.173461

Contact Information

Michael C. Jensen (Contact Author)
Harvard Business School ( email )
Soldiers Field
Negotiations, Organizations & Markets
Boston, MA 02163
United States
617-510-3363 (Phone)
305-675-3166 (Fax)
HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=6484
Social Science Electronic Publishing (SSEP), Inc. ( email )
7858 Sanderling Road
Sarasota, FL 34242
United States
617-510-3363 (Phone)
305 675-3166 (Fax)
HOME PAGE: http://ssrn.com/author=9

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Clifford W. Smith Jr.
Simon Graduate School of Business, University of Rochester ( email )
Carol Simon Hall 3-202C
Rochester, NY 14627
United States
585-275-3217 (Phone)
585-442-6323 (Fax)
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