Thursday, 28 January 2016

Agency theory versus "shareholders are owners"

Here is Eugene Fama an early paper on agency theory:
ownership of capital should not be confused with owner- ship of the firm. Each factor in a firm is owned by somebody. The firm is just the set of contracts covering the way inputs are joined to create outputs and the way receipts from outputs are shared among inputs. In this "nexus of contracts" perspective, ownership of the firm is an irrelevant concept. Dispelling the tenacious notion that a firm is owned by its security holders is important because it is a first step toward understanding that control over a firm's decisions is not necessarily the province of security holders.

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