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Jensen's best-known work is the 1976 Journal of Financial Economics article he co-authored with William H. Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure". [11]
It was only in the 1960s that the neo-classical theory of the firm was seriously challenged by alternatives such as managerial and behavioral theories. Managerial theories of the firm, as developed by William Baumol (1959 and 1962), Robin Marris (1964) and Oliver E. Williamson (1966), suggest that managers would seek to maximise their own ...
Professor Michael Jensen and the late Professor William Meckling of the Simon School of Business, University of Rochester wrote an influential paper in 1976 titled "Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure". [4]
Chief among them were the importance of organizational structure and aligning incentives to desired outcomes. [citation needed] [11] The published version of the paper focuses on managerial incentives: if management receives a lower fraction of the value created, managers will put in less effort to maximize firm value. They posited that if top ...
When ownership and control is divided within a company, agency costs arise. However agency costs decline if the ownership within the company increases as managers are responsible for a larger shares of these costs. On the other hand, giving ownership to a manager within a company may translate into greater voting power which makes the manager's ...
The Friedman doctrine was amplified after the publication of an influential 1976 business paper by finance professors William Meckling and Michael C. Jensen, "Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure", which provided a quantitative economic rationale for maximizing shareholder value. [7]
The Friedman doctrine was amplified after the publication of an influential 1976 business paper by finance professors Michael C. Jensen and William Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure", which provided a quantitative economic rationale for maximizing shareholder value. [7]
Advocates of the behavioral approach also challenged the omission of the element of uncertainty from the conventional theory. The behavioral model, like the managerial models of Oliver E. Williamson and Robin Marris, considers a large corporate business firm in which the ownership is separate from the management. [7]