Ag Agency Costs Of Legal Control

Since share-issuing company came into being, people have thought highly of it. It is mentioned in the same breath with the invention of stream engines and electric power. Marx has a famous saying: If we must wait single capital raised big enough to built railway, perhaps there is no railway until today. But the matter is completed by capital centralizing of share-issuing company in a flash. These words show the advantages of the share-issuing company which result in the separation of "ownership" and "control power". The share-issuing company combined the "wealth" and "intelligence" perfectly.The first persons who put forward the topic of separating "ownership" and " control power" is Berle and Means who are the representatives of enterprise manager theory. However, it is Michael C. Jensen and William H. Meckling who put forward the proposition "agent cost" after analyzing the organizations and relations in a enterprise with the separation of "ownership " and "control power". In the Theory of the Firm: Managerial Behavior, Agent Costs and Ownership Structure, published in1976,they pointed out: Under the condition that the "ownership" and "control power" are separated, the relationship between stockholders and managers is like that between principals and agents. If both parties to the relationship are utility maximizers there is good reason to believe that the agent will not act in the best interests of principals. So there will be some divergence between the agent's decisions and those decisions which would maximize the welfare of the principals. The reduction in welfare experienced by the principals and costs occurred in positive monitoring and bonding constitute the "agent costs". With the "control power" separated from the "ownership" more and more greatly, the agent costs increased accordingly.Many factors influence the agent costs of share-issuing company: such as different incentive for managers, different independence of board of directors, different finance structures, different competition from outer the companies.In order to efficiently the agent costs, scientific and perfect corporate governance systems are needed so that on one hand, the stockholders can enjoy the advantages brought by division of labor ,on the other hand, they won't suffer much loss of agent costs. The...