Law Commons^™

Who Bears The Cost Of Excessive Executive Compensation (And Other Corporate Agency Costs)?, David I. Walker

Faculty Scholarship

Managerial agency costs are ubiquitous in the modern public corporation. Agency costs arise from the separation of ownership and control and reflect the divergence between share-value-maximizing actions of managers and managers’ actual actions, plus the monitoring and bonding expenditures (including contracting costs) undertaken to reduce that divergence. Agency costs vary firm by firm, but regulatory actions and even business practices can have a systematic impact on agency costs. For example, increased or decreased enforcement of insider trading rules can affect agency costs across a wide spectrum of companies. Who bears the burden of corporate agency costs? Who gains or suffers …