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New page: {{corporations}} An '''agency cost''' refers to the price of securing the trust, cooperation, and accountability of a corporate officer in a corporation. The problem emanates from th...
{{corporations}}
An '''agency cost''' refers to the price of securing the trust, cooperation, and accountability of a corporate officer in a [[corporation]]. The problem emanates from the Berle/Means hypothesis, which states that, as a corporation diversifies, ownership (by the [[shareholder|shareholders]]) and operation (by the [[Officers (Corporation)|officers]]) are increasingly separated by distance, responsibilities, and knowledge, a divide which increases the risk of an officers' irresponsibility, and deliberate manipulation of the corporation for personal gain.
The answer is, often, [[regulation]]: the [[Sarbanes-Oxley Act]] (often referred to as SOX), for example, imposes accountability measures on corporate officers, and requires an independent and strong [[Board of Directors]] to look after shareholder interests. Of course, these measures come at increased cost. This is an agency cost, and represents the tradeoff between security, and the cost of security.
[[category:business]]
[[category:economics]]
An '''agency cost''' refers to the price of securing the trust, cooperation, and accountability of a corporate officer in a [[corporation]]. The problem emanates from the Berle/Means hypothesis, which states that, as a corporation diversifies, ownership (by the [[shareholder|shareholders]]) and operation (by the [[Officers (Corporation)|officers]]) are increasingly separated by distance, responsibilities, and knowledge, a divide which increases the risk of an officers' irresponsibility, and deliberate manipulation of the corporation for personal gain.
The answer is, often, [[regulation]]: the [[Sarbanes-Oxley Act]] (often referred to as SOX), for example, imposes accountability measures on corporate officers, and requires an independent and strong [[Board of Directors]] to look after shareholder interests. Of course, these measures come at increased cost. This is an agency cost, and represents the tradeoff between security, and the cost of security.
[[category:business]]
[[category:economics]]