AGENCY COSTS AND THE FIRM'S OPTIMUM CAPITAL STRUCTURE UNDER SEPARATION BETWEEN OWNERSHIP AND MANAGEMENT

The article analyses relations that take place between the owner (inclusive of shareholders) of the firm and its management. This problem is known and well described in the literature of the subject, but attempts to measure the agency costs in real firms are quite rare and most frequently are conducted indirectly. We propose a new method of assessing agency costs, indicating that they depend on three main determinants: attitude of decision makers towards debt financing, dividend disbursement policy and the length of time horizon taken into account. Theoretical appraisals are supplemented by simulations that are based on the empirical data. The results show that there are two factors that have the decisive influence on the reduction of agency costs, namely the long term managerial contracts and the high financial leverage.