William H. Meckling's research while affiliated with University of Rochester and other places

Publications (26)

Article
This classic by the formulators of agency cost theory discusses five common divisional performance measurement methods—cost centers, revenue centers, profit centers, investment centers, and expense centers—while providing a theory that attempts to explain when each of these methods is likely to be the most efficient. The central insight of the theo...
Article
Full-text available
This paper integrates elements from the theory of agency, the theory of property rights and the theory of fi nance to develop a theory of the ownership structure of the fi rm. We defi ne the concept of agency costs, show its relationship to the "separation and control" issue, investigate the nature of the agency costs generated by the existence of...
Chapter
Introduction and SummaryThe Agency Costs of Outside EquitySome Unanswered Questions Regarding the Existence of the Corporate FormThe Agency Costs of DebtA Theory of the Corporate Ownership StructureConclusions
Article
We develop a framework that is applicable to all freedom of expression disputes. Our framework is based on the meaning of freedom which is based on the meaning of scarcity, and which, in turn, is based on the existence of physical incompatibilities. To maximize freedom, one must differentiate between scarce and non-scarce rights. Scarce rights can...
Article
In Coordination, Control, and the Management of Organizations (CCMO) we periodically hand out an abbreviated set of course notes to students that follow reasonably closely the class schedule and discussions in the first half of the course. The notes are designed to help students organize the main points of the class discussions and their own notes,...
Article
With the possible exception of love, probably no word in the English language generates a more sympathetic response than the word freedom. Everyone favors freedom. We prize it not only for ourselves, but also as a characteristic of our society. Most of us, however, have given little thought to what we mean by freedom. We use it to describe virtuall...
Article
Capitalism is far and away the most effective system ever invented for peacefully organizing cooperation among large numbers of human beings. The success enjoyed by capitalistic economies during the last 70 years is in sharp contrast to the dramatic and widespread failure of communist and socialist centrally planned closed economies.The economies (...
Article
Our purpose in this paper is to examine divisional performance measurement methods and related aspects of the rules of the game that govern the behavior of managers. Performance measurement is one of the critical factors that determine how individuals in an organization behave. It is one aspect of what we call the organizational rules of the game,...
Article
This document contains a collection of 99 exam questions from the last 20 years of the Coordination, Control, and the Management of Organizations (CCMO) course. They are given to students at the end of the semester as a vehicle to aid their study for the final exam. These questions are a combination of stand-alone questions and questions that accom...
Article
This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the 'separation and control' issue, investigate the nature of the agency costs generated by the existence of deb...
Article
Page 1. THE OF Michael C. Harvard Business School mjensen@hbs.edu and William H. Meckling University of Rochester Abstract
Article
The right to bring an action in court is an important right which many argue should be granted liberally. The United States Supreme Court, for example, has held that under certain situations access to court is a citizen's fundamental right. This paper discusses one facet of access to the courts, namely, standing to sue: the legal doctrine shaped by...
Article
The corporation as an organizational form is an enormously productive social invention. Partly because of its success it is under increasing attack from various quarters, often under the guise of protecting investors from self-interested managers. Some of these attacks are successful simply because the corporation is a poorly understood entity. Thi...
Article
In this article we review the implications of the Nader proposals for Taming the Giant Corporation and the related campaigns for economic and corporate democracy. These campaigns, if successful, would impose costs on one group for the benefit of others, reduce economic efficiency and wealth, and finally would reduce, not increase, freedom. Corporat...
Article
This article examines unrecognized implications of various doctrines governing access to court. The analysis indicates that doctrines such as standing, res judicata and collateral estoppel have far reaching implications for the nature of adjudication and the basic structure of rights in society. A liberal standing doctrine causes Peremptory Adjudic...
Article
It is traditional in the theory of the firm to define the production opportunity set available to the firm in terms of its boundary the maximum attainable set of output quantities for various input quantities, given the state of technology and knowledge. This boundary is the production function of the firm. One of our purposes here is to point out...
Article
One of the tactics politicians use in their quest for power is to draw a false distinction between human rights and property rights. Property rights are, in the last analysis, rights of individuals. As investors, who have a direct stake in the property rights of corporation, become less certain that society will honor those rights, the capitalized...
Article
Is there a fundamental conflict between a political democracy as we know it and a free market, private enterprise or capitalist system? William Meckling and Michael Jensen of the University of Rochester, New York, believe that indeed there is, and that it is only a matter of time before the political sector eliminates most of the freedoms we still...
Article
Why do we so often find the press carrying glowing stories of the benefits derived from governmental programs such as urban renewal (often-times even when they are in the process of failing miserably)? In view of this, why are we so seldom treated to glowing reports by the press about how a housing developer, for example, has improved the standard...
Article
The long-run tendency toward expansion of government that has dominated social developments in the Western democracies for many years is attracting increasing attention from an array of social science scholars in search of a systematic explanation. This paper is an attempt to contribute a small fragment to that discussion. It addresses the rational...
Article
In this paper we draw on recent progress in the theory of (1) property rights, (2) agency, and (3) finance to develop a theory of ownership structure for the firm.1 In addition to tying together elements of the theory of each of these three areas, our analysis casts new light on and has implications for a variety of issues in the professional and p...
Article
This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of deb...

Citations

... In a blind audition, the agency cost is zero if the evaluator's bias is high. Conversely, when the bias is low, an agency cost arises from In the literature, agency cost is defined as the sum of the principal's monitoring expenditures, the bonding expenditures by the agent, and the residual loss that arises from a divergence between the agent's decisions and those decisions which would maximise the principal's welfare (Jensen and Meckling 1976). In my model, the agency cost is purely driven by the residual loss arising from distorted effort incentives. ...
... Agency conflicts and financing constraints are the main reasons for the inefficiency of corporate investment and the irrational allocation of resources (Bertrand & Mullainathan, 2003;Jensen & Meckling, 1976;Yu et al., 2014). This phenomenon is particularly obvious in the SOEs with "owner absence" and "government intervention," which seriously hinders the tilt of SOEs' resources to exploratory innovation. ...
... Theoretical framework-agency theory [30] is generally accredited to have popularised the agency theory although several attempts were made before 1976. The agency theory describes the relationship that exists when a principal employs an agent and grants the agent the authority to act on his behalf [30]. ...
... Conforme Damodaran (2004), uma possível explicação para tal hierarquia de preferência é a valorização, por parte dos administradores, do controle e da flexibilidade em suas mãos. Admite-se que o surgimento de dívidas reduz alguns custos de agência, uma vez que os gestores ficam limitados ao fluxo de caixa proveniente do endividamento (JENSEN; MECKLING, 2008;KOCHHAR, 1996). Ou seja, a TPO estima uma relação negativa entre a rentabilidade das empresas e o seu nível de endividamento, ao passo que a TOT estima que empresas mais rentáveis possuem maior estímulo para contraírem dívida. ...
... A growing empirical literature has since tested the framework and found strong empirical evidence that it helps explain the internal organization of successful commercial firms. For a more general discussion of this framework and other materials relevant to it, seeJensen and Wruck (1998). ...
... One of the theories that have explained the lower efficiency of some SOEs is the agency theory (Jensen & Meckling, 1976;Fama & Jensen, 2008). According to this theory, SOEs' lower efficiency would be due to the inefficiency of its owner (P) to establish an adequate control and incentive system that allows it to reduce the residual loss of efficiency that the separation between ownership and management of the subordinate unit entails. ...
... However, the capital structure theory explained by Modigliani and Miller (1958) was mostly based on "perfect capital market". Later on, Jensen and Meckling (1976) came with the concept of debt financing and revealed that the debt financing increases a firm's profitability. One of the major benefits of debt financing is the tax shield that it provides which was later proved to contribute largely in the capital structure theory. ...
... Michael Jensen started his academic career as a strong proponent of a 'mechanistic paradigm' (Dierksmeier 2011(Dierksmeier , 2016 in economics, maintaining a conception of economics operating from the assumption that economic behavior tracks quasi-natural laws that can be modeled more or less like force vectors in analytical mechanics. All of Jensen's earlier works operate within this mechanistic frame, be it in his development of models for asset pricing markets (Jensen 1969;Jensen and Long Jr. 1972), or in his muchnoted revival of the market efficiency hypothesis (Jensen and Meckling 1977, 1978. From these premises, Jensen defended a lassez-faire-oriented approach in economic policy, e.g., in regard to corporate control and takeovers (Jensen and Ruback 1983;Jensen 1985aJensen , b, 1988Jensen , 1991 as well as leveraged buyouts (Jensen 1989;Jensen et al. 1989). ...
... This is contrary to Alchian and Demsetz (1972), who hold that market transactions are not eliminated within the firm and consider the act of creating a company as an ordinary contract between private people. In the same way, we disagree with Jensen and Meckling (1983), who see the firm as a nexus of contracts: it is, on the contrary, a functional entity (see Chapter 11). This position permits us to see that the shareholders are not the owners of the corporation: they are only owners of their shares. ...
... 2 Distinguishing between these two classes of managers is useful because when it comes to management capacity in nascent ventures, both coordination issues (as discussed above) and managerial alignment issues come into play. Prior research has long discussed the problems that arise when one party (e.g., manager) acts on behalf of another (entrepreneur/ owner) in ways that misalign, engaging actions that favor what is best for the employee over what is best for the owner(s) (e.g., Jensen & Meckling, 1977). While such self-interest seeking by employees can happen, in nascent ventures, it is often not as pressing of a concern as another misalignment issue: differences in access, processing, and use of information. ...