Abstract
Corporate managers are the agents of shareholders; a relationship fraught with conflicting interests. Agency theory, the analysis of such conflicts, is now a major part of the economics literature. The payout of cash to shareholders creates major conflicts that have received little attention. Payouts to shareholders reduce the resources under managers' control, thereby reducing managers' power, and making it more likely they will incur the monitoring of the capital markets which occurs when the firm must obtain new capital. Financing projects internally avoids this monitoring and the possibility the funds will be unavailable or available only at high explicit prices.
Keywords
ShareholderAgency costFree cash flowAgency (philosophy)Cash flowBusinessFinancePrincipal–agent problemCapital marketControl (management)Corporate financeCapital (architecture)CashAccountingEconomicsCorporate governance
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Publication Info
- Year
- 1996
- Type
- book-chapter
- Pages
- 11-16
- Citations
- 9643
- Access
- Closed
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Cite This
Michael C. Jensen
(1996).
Agency costs of free cash flow, corporate finance, and takeovers.
Cambridge University Press eBooks
, 11-16.
https://doi.org/10.1017/cbo9780511609435.005
Identifiers
- DOI
- 10.1017/cbo9780511609435.005