Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure Michael C. Jensen Harvard Business School MJensen@hbs.edu And William H. Meckling University of Rochester Abstract This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency
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Index measures market A. Structure B. Performance C. Conduct D. Behavior Low number means high performance; not much should be changed High number means low performance; a lot should be changed 5. Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets? A. Firms produce homogeneous goods not true for monopolists B. Prices are equal to marginal costs in the long-run not true for monopolists C. Long run profits are zero true
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ALL OF THE GROUP’S ASSETS INTO A SINGLE PUBLICLY-LISTED COMPANY OR REMAIN A TWO-TIERED STRUCTURE? To be able to argue whether the Baosteel Group should consolidate the entire Group’s assets into a single publicly-listed company or remain a two-tiered structure one first needs to review the underlying situation, Baosteel was faced with. In order to stay competitive on the increasingly fierce global steel market Baosteel was required to not only advance in technology but also to increase its output
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emerging markets is a complex field for managers and academics. Most of the models used in investments and corporate finance have been developed under the assumption of at least moderately efficient markets, but this assumption seems to be questionable when moving to less developed markets. Emerging markets are not efficient markets; they are characterized by higher information asymmetries, higher transaction costs, more concentrated ownership, lack of market development, relatively low market liquidity
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making on the key drivers of value. It’s very different from 1960s-style planning systems. It is not a staff-driven exercise. It focuses on better decision making at all levels in an organization. It recognizes that top-down command-and-control structures cannot work well, especially in large multi-business corporations. Instead, it calls on managers to use value-based performance metrics for making better decisions. It entails managing the balance sheet as well as the income statement, and balancing
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low-cost manufacturer by focusing on high automation. The aim of this strategy is to be the cost leader in the traditional and low-end segments with the aim of capturing the largest market share possible. To be more specific, we seek to be the cost leader by heavily investing into machinery in order to minimize cost and maximizing efficiency. In that way, we can take our advantage in cost by lowering our product price. Since customers in low end and traditional segment treat price as an important factor
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than be involved in a perfectly competitive market.’ Discuss. 1b) In May 2009 Intel was fined a record amount by the EU for predatory pricing. Assess how easy is it to conclude that Intel undertook predatory pricing? Contents I) 1a) ‘A firm would prefer to b a monopoly, rather than be involved in a perfectly competitive market.’Discuss-------------------------------P/1-P/5 1) Market Environment---------------------------------------P/1-P/2 2) Profit Maximization----------------------------------------P/2-P/5
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MARKET STRUCTURES Brandi Milostan ECO204: Principles of Microeconomics Professor Mellon July 6, 2015 Welcome Mayor Knowsnothing Congratulations on the start of your new journey Mayor Knowsnothing. I appreciate the opportunity to work with you and get you up to speed on all of the market structures and answer any questions that you may have. I will explain to you the characteristics of each structure and provide you with examples of each from our neighborhood. I’ll help you to understand
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General Motors Case Analyses I. History General Motor was at one time, one of the world’s largest car and truck manufacturers reaching back more than a century in 1908, when William C. Durant founded General Motors Corporation. He brought together 25 independent car companies, which included Oldsmobile, Cadillac and Oakland, known as Pontiac. General motors was just a holding company for these independent car companies. Durant left the General Motors firm in 1911 and went on to be co-founder
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that all three kinds of firms share is profits, and it seems that profits are the primary objective in most cases. We will follow the neoclassical tradition by assuming that firms aim at maximizing their profits. There are two reasons for this assumption. First, despite the growing importance of nonprofit organizations and the frequent calls for corporate social responsibility, profits still seem to be the most important single objective of producers in our market economy. Thus it is the right place
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