Agency costs (See Chapters 32 and 34 of the Vernimmen) The diverging interests of the various stakeholders (shareholders, managers, and creditors) in a company generate a number of costs called agency costs. These comprise: the cost of monitoring managers' efforts (control procedures, audit systems, performance-based compensation); the costs incurred by the agents to vindicate themselves and reassure the principals that their management is effective, such as the publication of annual reports; residual costs. Agency costs are also related to shareholders’ behaviour to the detriment to creditors, when the company is in financial difficulties (undertaking of risky projects, sell-off of the assets in place, refusal to invest in NPV-positive projects). Agency costs (See Chapters 32 and 34 of the Vernimmen) The diverging interests of the various stakeholders (shareholders, managers, and creditors) in a company generate a number of costs called agency costs. These comprise: the cost of monitoring managers' efforts (control procedures, audit systems, performance-based compensation); the costs incurred by the agents to vindicate themselves and reassure the principals that their management is effective, such as the publication of annual reports; residual costs. Agency costs are also related to shareholders’ behaviour to the detriment to creditors, when the company is in financial difficulties (undertaking of risky projects, sell-off of the assets in place, refusal to invest in NPV-positive projects). See all terms in the dictionary of finance To know more about it, look at what we have already written on this subject :

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Definitions of terms begining with the same letter as "Agency costs" :

ABS ADR ANAV APE APT APV Abandonment risk Accelerated book-building Accelerated depreciation Accelerated share repurchase Account balancing Accounting criteria of value creation Accounting currency risk Accounting procedures with an impact on earnings Accounts payable Accounts receivable Accretion Accruals Accrued expense Accrued income Acid test ratio Acquisitions Acquisitions Acquisitions Adjustable rate preference shares

Adjustable-rate debt security Adjusted Net Asset Value Adjusted present value, APV Administrative synergy Advance dividend Affirmative covenant Agency costs Agency theory Agent bank Agent fee Agreement in principle All-in cost All-share transaction Alliance Allocative efficiency Alpha Also called order book. Alternative management American Depositary Receipt American option Amortisation Amortisation of the loan Annual Premium Equivalent Annual effective interest rate Annuity

Annuity factor Apparent dilution Appraisal clause Arbitrage Arbitrage pricing theory, APT Arranger Arranging the deal Asset backed commercial paper Asset backed securities Asset beta Asset contribution Asset coverage Asset turnover Assets Associate Associated undertaking Asymmetry - option Asymmetry - shareholder / creditor Asymmetry – issuer/investor At the money Atypical silent partner Auction Auction clause Average life of a bond