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Interactions between Corporate Agency Conflicts
Author(s) -
Douglas Alan V. S.
Publication year - 2009
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2009.00214.x
Subject(s) - shareholder , incentive , business , agency (philosophy) , asset (computer security) , agency cost , preference , information asymmetry , compensation (psychology) , principal–agent problem , investment (military) , finance , microeconomics , enterprise value , industrial organization , economics , corporate governance , psychology , philosophy , computer security , epistemology , politics , computer science , psychoanalysis , political science , law
This paper examines simultaneous incentive conflicts between shareholders, bondholders, and managers. Manager‐owner conflicts arise from information asymmetries, and interact with traditional shareholder‐bondholder conflicts (i.e., underinvestment and asset substitution conflicts). Managers are aligned with the bondholders' preference to avoid underinvestment, but are aligned with the shareholders' preference for asset substitution, to the extent that riskier investments increase the manager's information advantage. The interactions between conflicts extend the agency cost literature and facilitate empirical implications linking the influence of each party to investment opportunities, financial policy, compensation contracts, and firm value.