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Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers

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Corporate managers are the agents of shareholders, a relationship fraught with conflicting interests. Agency theory, the analysis of such conflicts, is now a major part of the economics literature. The payout of cash to shareholders creates major conflicts that have received little attention.' Payouts to shareholders reduce the resources under managers' control, thereby reducing managers' power, and malung it more likely they will incur the monitoring of the capital markets which occurs when the firm must obtain new capital (see M. Rozeff, 1982; F. H. Easterbrook, 1984). Financing projects internally avoids thls monitoring and the possibility the funds will be unavailable or available only at high explicit prices.
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Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers
Michael C. Jensen
The American Economic Review, Vol. 76, No. 2, Papers and Proceedings of the Ninety-Eighth
Annual Meeting of the American Economic Association. (May, 1986), pp. 323-329.
Stable URL:
http://links.jstor.org/sici?sici=0002-8282%28198605%2976%3A2%3C323%3AACOFCF%3E2.0.CO%3B2-M
The American Economic Review is currently published by American Economic Association.
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LINKED CITATIONS
- Page 1 of 2 -
You have printed the following article:
Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers
Michael C. Jensen
The American Economic Review, Vol. 76, No. 2, Papers and Proceedings of the Ninety-Eighth
Annual Meeting of the American Economic Association. (May, 1986), pp. 323-329.
Stable URL:
http://links.jstor.org/sici?sici=0002-8282%28198605%2976%3A2%3C323%3AACOFCF%3E2.0.CO%3B2-M
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[Footnotes]
3 Going Private: Minority Freezeouts and Stockholder Wealth
Harry DeAngelo; Linda DeAngelo; Edward M. Rice
Journal of Law and Economics, Vol. 27, No. 2. (Oct., 1984), pp. 367-401.
Stable URL:
http://links.jstor.org/sici?sici=0022-2186%28198410%2927%3A2%3C367%3AGPMFAS%3E2.0.CO%3B2-A
3 Management Buyouts
Louis Lowenstein
Columbia Law Review, Vol. 85, No. 4. (May, 1985), pp. 730-784.
Stable URL:
http://links.jstor.org/sici?sici=0010-1958%28198505%2985%3A4%3C730%3AMB%3E2.0.CO%3B2-8
References
Going Private: Minority Freezeouts and Stockholder Wealth
Harry DeAngelo; Linda DeAngelo; Edward M. Rice
Journal of Law and Economics, Vol. 27, No. 2. (Oct., 1984), pp. 367-401.
Stable URL:
http://links.jstor.org/sici?sici=0022-2186%28198410%2927%3A2%3C367%3AGPMFAS%3E2.0.CO%3B2-A
NOTE: The reference numbering from the original has been maintained in this citation list.

http://www.jstor.org
LINKED CITATIONS
- Page 2 of 2 -
Two Agency-Cost Explanations of Dividends
Frank H. Easterbrook
The American Economic Review, Vol. 74, No. 4. (Sep., 1984), pp. 650-659.
Stable URL:
http://links.jstor.org/sici?sici=0002-8282%28198409%2974%3A4%3C650%3ATAEOD%3E2.0.CO%3B2-N
Management Buyouts
Louis Lowenstein
Columbia Law Review, Vol. 85, No. 4. (May, 1985), pp. 730-784.
Stable URL:
http://links.jstor.org/sici?sici=0010-1958%28198505%2985%3A4%3C730%3AMB%3E2.0.CO%3B2-8
NOTE: The reference numbering from the original has been maintained in this citation list.

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