The agency cost of financial decision making: an empirical analysis

Jensen and Meckllng in "Theory of the Firm: Managerial Behavior and Capital Structure" [1976] introduced the concept that managers choose their ownership in the firm and leverage ratio to minimize agency costs. Easterbrook [1984] and Rozeff [1982] extended this notion with the hypothesis that dividends are paid to reduce equity agency costs. Myers [1977] explained debt agency costs as being a possible underinvestment problem with risky debt, and Jensen [1986] hypothesized that increases in debt could control the free cash flow agency problem. This dissertation will be a comprehensive test of Jensen and Meckling’s agency theory including extensions by Rozeff, Easterbrook, Myers and Jensen. To test agency theory a contemporaneous three equation model determining managerial ownership, leverage and dividends is specified. The exogenous variables include variables which are expected to impact upon agency costs, diversification measures, and variables registering non-agency explanations of leverage and dividends. This dissertation provides critically needed empirical evidence on the agency problem and a specific test of Jensen and Meckling.

Name thesis:degree_name

Ph. D.

Level thesis:degree_level

doctoral

Discipline thesis:degree_discipline

Finance

Department dc:contributor.department

Finance

Grantor dc:publisher

Virginia Polytechnic Institute and State University

Year dc:date.issued

1987

Author dc:creator

• Crutchley, Claire Elaine

Chair dc:contributor.committeechair

• Hansen, Robert S.

Committee members dc:contributor.committeemember

• Johnson, Dana J.
• Kumar, Raman
• Keown, Arthur J.
• Ferris, Stephen P.
• Taylor, Bernard W. III

Statement dc:rights

• In Copyright

Licence dc:rights.uri

• http://rightsstatements.org/vocab/InC/1.0/

Handle dc:identifier.uri

http://hdl.handle.net/10919/49840

OAI identifier oai:identifier

oai:vtechworks.lib.vt.edu:10919/49840