Agency Costs Agency costs are the costs associated with the separation of owners and management. Types of agency costs:
{"Image DocumentName": "Agency CostsAgency costs are the costs associated with the separation of owners and management. Types of agency costs:", "Image ImageDescription": "Monitoring costs. Bonding costs. Residual loss. The better the corporate governance, the lower the agency costs. Agency costs increase the cost of equity and reduce the value of the firm. The higher the use of debt relative to equity, the greater the monitoring of the firm and, therefore, the lower the cost of equity. LOS: Explain the Modigliani\u2013Miller propositions concerning capital structure, including the impact of leverage, taxes, financial distress, agency costs, and asymmetric information on a company\u2019s cost of equity, cost of capital, and optimal capital structure. Page 211\u2013212. Agency Costs. Monitoring costs: Cost of the annual report. Cost of independent auditors. Cost of having securities rated. Bonding costs (difficult to observe): Noncompete clauses in employment contracts. Residual loss: Consumption of excessive perquisites (e.g., corporate jet used for personal business) Copyright \u00a9 2013 CFA Institute.", "Image XResolution": "37", "Image YResolution": "37", "Image ResolutionUnit": "Pixels/Centimeter", "Image Software": "SlidePlayer", "Image YCbCrPositioning": "Centered"}