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The costs of paying the bonus is still an agency cost, [4] but the company will profit from paying this cost so long as the avoided residual cost (as defined above), is greater than the bonus. [21] Another key method by which agency costs are reduced is through legislative requirements that companies undertake audits of their financial ...
Company management is responsible for establishing a capital structure for the corporation that makes optimal use of financial leverage and holds the cost of capital as low as possible. [1] [2] Capital structure is an important issue in setting rates charged to customers by regulated utilities in the United States. The utility company has the ...
Miller was a professor at the University of Chicago when he was awarded the 1990 Nobel Prize in Economics, along with Harry Markowitz and William F. Sharpe, for their "work in the theory of financial economics", with Miller specifically cited for "fundamental contributions to the theory of corporate finance".
The trade-off theory of capital structure is the idea that a company chooses how much debt finance and how much equity finance to use by balancing the costs and benefits. The classical version of the hypothesis goes back to Kraus and Litzenberger [ 1 ] who considered a balance between the dead-weight costs of bankruptcy and the tax saving ...
In economic theory, the principal-agent approach (also called agency theory) is part of the field contract theory. [36] [37] In agency theory, it is typically assumed that complete contracts can be written, an assumption also made in mechanism design theory. Hence, there are no restrictions on the class of feasible contractual arrangements ...
The following outline is provided as an overview of and topical guide to corporate finance: . Corporate finance is the area of finance that deals with the sources of funding, and the capital structure of corporations, the actions that managers take to increase the value of the firm to the shareholders, and the tools and analysis used to allocate financial resources.
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The theory of the firm consists of a number of economic theories that explain and predict the nature of the firm, company, or corporation, including its existence, behaviour, structure, and relationship to the market. [1] Firms are key drivers in economics, providing goods and services in return for monetary payments and rewards.