agency costs

Agency costs

The incremental costs of having an agent make decisions for a principal.

Agency Costs

Costs that arise from the inefficiency of a relationship between an agent and a principal. In a publicly-traded company, agency costs may arise because the company's executives (the agents) may act in their own interest in a way that is detrimental to shareholders (the principals). For example, they may raise their own salaries to an unrealistic level. Agency costs are best reduced by providing appropriate incentives to align the interests of both agents and principals.

agency costs

the failure of employees (as ‘agents’), hired by the owners (the ‘principals’) of a business, to fully comply with the terms and responsibilities stipulated in their CONTRACT OF EMPLOYMENT. For example, operatives may ‘shirk’, indulging in time wasting (long tea breaks etc) thus leading to a loss of potential output. The companies executive directors may fail to put shareholder interests first and pursue other BUSINESS OBJECTIVES of more ‘value’ to themselves. See PRINCIPAL-AGENT THEORY.

Strategists are concerned not only with agency costs (internal to the firm) but also with the TRANSACTION COSTS of using external markets. Together these can be important considerations in influencing the extent of VERTICAL INTEGRATION/DISINTEGRATION.

References in periodicals archive ?
Volume one opens with the 1965 article by Henry Manne explaining the importance of mergers as a constructive control on managerial agency costs.
Companies can cut agency costs associated with rework and reuse in different channels and media by 50% or more"- a category in which Pica9 is recognized.
Huge NHS agency costs I READ with utter horror in the Examiner (Tuesday, November 3) 'PS47k Per Day Cost of Agency Medics.
Severn Trent Water Limited was fined Au480,000, ordered to pay Environment Agency Costs of Au13,675.
The finance director added: "The reported overspend reflects signifi-cant operational service expenditure, particularly for staff agency costs, to meet required staffing levels, increasing continuing healthcare package requirements to meet the needs of the board's population and increasing prescribing costs.
Health Secretary Shona Robison said the Government were working on ways to reduce agency costs.
This has resulted not just in additional costs to the NHS in direct agency costs - there are the add-on costs in management, training and administration - but some 29% of recruits were nurses from abroad, also adding to recruitment costs and raising concerns over language and standards.
Lowering staff turnover is also vital in reducing recruitment agency costs and the inconvenience of starting the hiring process.
Agency costs across 100 NHS organisations have risen from PS143million in 2011/12 to PS175million in 2012/13.
To explore the above idea empirically, we study the relationship between stock market mispricing and agency costs in a sample of 431 publicly listed subsidiaries in Japan.
By reducing agency costs, commercializing noninterstate rest areas, and seeking sponsorship and naming rights for certain infrastructure projects, ODOT could save nearly $200 million annually.
The initiative allows for the staff to benefit through employment without incurring any agency costs for placement, visas and travel.

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