chapter 5
Agency theory and shareholder value
The origins of agency theory as it underpins shareholder value and its application to strategic management are located with Ross (1973) and Jensen and Meckling (1976). Agency theory concentrates on what has been labelled as the agency problem that comes with the principal-agent relationship – a problem that can be solved with efficient contracts. For a business firm, this is further elaborated in terms of shareholder value (Rappaport, 1986). It means that a firm’s strategic management is expected to make the interests of shareholders paramount.
The process logic of agency theory and shareholder value
Economists like efficiency. They use it as a driver and explanation for almost everything. The market ...
