Theory of the Firm¶
Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305-360.
Cited by¶
15 citations across 15 artifacts.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Accountability
- A board cannot know whether a CEO's reported revenue decline is due to market forces or management incompetence—the canonical agency problem Jensen and Meckling (1976) formalized in terms of monitoring and bonding costs
This sourceClassical principal-agent framework formalizing agency costs as monitoring costs (principal), bonding costs (agent), and residual loss
- A board cannot know whether a CEO's reported revenue decline is due to market forces or management incompetence—the canonical agency problem Jensen and Meckling (1976) formalized in terms of monitoring and bonding costs
- Agency Problem
- The construct was named and formalized by Jensen and Meckling (1976) and Ross (1973), though the underlying concerns appear in Adam Smith (1776) and throughout economic and legal history
This sourceNames and formalizes agency costs (monitoring, bonding, residual loss) and relates them to ownership structure; the canonical principal-agent framework. SUPPORTS both the 'named and formalized by Jensen and Meckling' claim and the shareholder-manager Broad-Use citation.
- The construct was named and formalized by Jensen and Meckling (1976) and Ross (1973), though the underlying concerns appear in Adam Smith (1776) and throughout economic and legal history
- Conflict of Interest
- Principal-Agent Theory (Jensen and Meckling). In principal-agent theory, as Jensen and Meckling (1976) formalize, the agent (CEO, director, doctor) exercises delegated authority.
This source(Annotation corrected — see flag.) Live-verified (ScienceDirect).
- Principal-Agent Theory (Jensen and Meckling). In principal-agent theory, as Jensen and Meckling (1976) formalize, the agent (CEO, director, doctor) exercises delegated authority.
- Goal Congruence (Alignment)
- The case illustrates that alignment requires changing actual incentives, not just messaging, and that properly aligned incentives can align individual and collective interest rather than requiring sacrifice
This sourceFoundational agency-cost framework: divergent principal/agent interests generate monitoring, bonding, and residual-loss costs, aligned through incentive contracts and residual claims.
- The case illustrates that alignment requires changing actual incentives, not just messaging, and that properly aligned incentives can align individual and collective interest rather than requiring sacrifice
- Incentive Compatibility
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This sourceClassical principal-agent framework grounding standard delegation in a contractible, bounded set of contingencies and aligning incentives through monitoring and residual claims; serves as the baseline against which uncertainty-contingent delegation is defined.
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- Information Asymmetry
- Law and governance: Disclosure rules (securities prospectuses, food labeling), fiduciary duties, audit requirements, and discovery in litigation all exist to compress information asymmetry between principals and agents, firms and investors, or adversaries in a dispute.
This sourceClassical principal-agent framework grounding standard delegation in a contractible, bounded set of contingencies and aligning incentives through monitoring and residual claims; serves as the baseline against which uncertainty-contingent delegation is defined.
- Law and governance: Disclosure rules (securities prospectuses, food labeling), fiduciary duties, audit requirements, and discovery in litigation all exist to compress information asymmetry between principals and agents, firms and investors, or adversaries in a dispute.
Mechanisms¶
- Delegated Approval Rule
- This is the principal-agent problem in miniature — the delegate's local incentives may not match the principal's, so a grant written for convenience can be exercised in ways the grantor never intended.
This sourceDefines an agency relationship as delegating decision authority to an agent and explains that divergent interests can lead the agent to act contrary to the principal's interests.
- This is the principal-agent problem in miniature — the delegate's local incentives may not match the principal's, so a grant written for convenience can be exercised in ways the grantor never intended.
- Human Agent or Representative
- Its failure mode is the principal–agent problem: the agent has its own incentives (its commission, its ongoing relationships with the counterparties) that can quietly diverge from the principal's, and because the agent controls the interface, the principal may not see the divergence.
This sourceDefines the principal–agent problem around interests that can diverge between principal and agent.
- Its failure mode is the principal–agent problem: the agent has its own incentives (its commission, its ongoing relationships with the counterparties) that can quietly diverge from the principal's, and because the agent controls the interface, the principal may not see the divergence.
- Local Partner or Agent Network
- Quality varies, incentives can pull against the mission (agents cherry-pick easy transactions, or commit fraud), and the brand carries the blame for their conduct
This sourceExplains that agency costs arise when an agent’s incentives diverge from the principal’s interests.
- Quality varies, incentives can pull against the mission (agents cherry-pick easy transactions, or commit fraud), and the brand carries the blame for their conduct
- Principal-Agent Reporting Protocol
- The discipline that keeps it honest is tying rights to the exposure map (so the agent cannot report around the decisions that matter), requiring assurance on the load-bearing figures, and pairing it with independent monitoring.
This sourcePrincipal monitoring, including auditing and formal controls, is a standard response to agency costs.
- The discipline that keeps it honest is tying rights to the exposure map (so the agent cannot report around the decisions that matter), requiring assurance on the load-bearing figures, and pairing it with independent monitoring.
- Recursive Delegation Protocol
- Its failure mode is the principal-agent problem: a delegated subunit pursues its local goal in ways that diverge from the whole's intent, and because the protocol grants autonomy, that divergence is structurally invited, not accidental.
This sourceModels delegated decision authority under divergent principal-agent interests and the resulting monitoring and agency costs.
- Its failure mode is the principal-agent problem: a delegated subunit pursues its local goal in ways that diverge from the whole's intent, and because the protocol grants autonomy, that divergence is structurally invited, not accidental.
- Reporting Requirement
- It only narrows the information asymmetry between principal and agent; it does not close it, because the informed party is still the one holding the pen.
This sourceTreats reporting and independent audit as costly monitoring or bonding devices that reduce agency divergence without eliminating residual agency loss.
- It only narrows the information asymmetry between principal and agent; it does not close it, because the informed party is still the one holding the pen.
Verification¶
Does it exist? Confirmed. This work's DOI resolves to a registered record, which fixes its identity. That is all it fixes.
Does it back the claim? Not recorded. Neither this nor any other of the 15 citations of this work carries a recorded support check.
Support is checked per citation rather than per work — the same source can be cited soundly in one article and wrongly in another. Per-citation recording began recently, so a citation with no recorded check is a gap in the record rather than evidence it went unchecked.
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