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Negative agency costs


  • Jacques Thépot

    () (Laboratoire de Recherche en Gestion et Economie, Université de Strasbourg)


Managerial opportunism is commonly considered as destructive for the parties involved in an agency relationship. Using a close formulation to Jensen and Meckling’s equity model, we consider an agency relationship between a manager and an investor. The latter is assumed to benefit from a market power through external funding opportunities. For high values of the prevailing rate of interest, we prove that the agency costs can be negative, either when the manager or the investor acts as the leader in the agency relation. These results suggest that external conditions may have a differentiated impact on the ex ante and ex post inefficiencies created by managerial opportunism.

Suggested Citation

  • Jacques Thépot, 2009. "Negative agency costs," Working Papers of LaRGE Research Center 2009-14, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
  • Handle: RePEc:lar:wpaper:2009-14

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    Corporate finance; agency cost; market power.;

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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