Agency Theory Jensen and Meckling

Jensen and Meckling (1976) put forward the theory of the agency, explained that the interests of management and shareholder interests often conflict, so that conflicts can arise between them. This happens because managers tend to try to give priority to private interests. Shareholders may not like the personal interests of leaders as it will add costs to the company, it will reduce the benefits received. Conflicts of interest between managers and shareholders can be minimized by a monitoring mechanism to adjust the related interest. But with the advent of such a mechanism would cause the cost of fees the agency said. This cost can be body or agency costs of equity.

Agency Theory Jensen and Meckling

Based on agency theory, it is known that the interests of the leaders of the company's management is different from the interests of shareholders. Managers can take actions to improve their personal well-being, rather than trying to maximize the market value. Potential conflicts of interest caused by the importance of a mechanism aimed at protecting the interests of shareholders.

Agency Theory Jensen and Meckling

Jensen et al. (1992) tested the effect of insider ownership, dividend policy and debt policy (ratio) of debt on public companies from different sectors in the United States. Search Jensen et al. (1992) states that the debt ratio is a function of insider ownership, dividends, business risk, profitability, research and development and capital. Technical analysis is a technique of multiple regression analysis. The results of this research that there is a negative relationship between insider ownership at the debt policy. These results suggest that, with increasing participation of insiders could jeopardize the interests of shareholders and directors, and ownership management can replace the role of debt in reducing agency costs. Search Jensen et al. (1992) also found that greater insider ownership leads to a decrease in dividend yield.