Agency theory - finance, Finance Basics

Agency Theory

The agency problem between managers and shareholders can be resolved via paying high dividends. If retention is low, managers are necessary to increase additional equity capital to finance investment. Each fresh equity matter will expose the managers financing decision to providers of capital as like bankers, suppliers, investors and so on. Managers will so engage in activities such are consistent along with maximization of shareholders wealth with making full disclosure of their activities.

This is since they know the firm will be exposed to external parties during external borrowing. Thus, Agency costs will be reduced as the firm becomes self-regulating. Dividend policy will contain a beneficial effect on the value of the firm. This is since dividend policy can be used to decrease agency problem with decreasing agency costs. The theory implies about firms adopting high dividend payout ratio will contain a higher because of decreased agency costs.

Posted Date: 1/31/2013 2:39:50 AM | Location : United States







Related Discussions:- Agency theory - finance, Assignment Help, Ask Question on Agency theory - finance, Get Answer, Expert's Help, Agency theory - finance Discussions

Write discussion on Agency theory - finance
Your posts are moderated
Related Questions
what are the difference between receipt and payment account and income and expenditure account ?

From the following cost, production and sales data of Decors Motor Ltd., prepare comparative income statement for three years under (i) absorption costing method, and (ii) marginal

Capital Corporation, which has a target capital structure of 40 percent debt and 60 percent common equity, is evaluating an expansion project with an 8.5 percent IRR. The project c

What is cash deficit?And what is cash surplus?Describe each of them in detail.

Significant Features of Partnership 1) The capital is contributed by the partners and no appeal is made to the public. 2) Like the sole proprietorship, a partnership has a l

Managerial Finance Functions Require skilful execution, control and planning of financial activities.  Hence there are four significant managerial finance functions. Such are


Describe the structure of financial systems with financial markets, securities and financial intermediaries. By a structural point of view a financial system can be considered

Concentration Banking Firms along with regional sales outlets can designate specific of these as regional collection centre. Customers during these areas are necessitated to r

The Balance Sheet of International Trade Ltd. as on 31/3/2008 is as under:-                                  Liabilities Amount Assets