Gen Gls2 y transcritos derivados de este gen

Under the heading of Principal Agent Theory many theories and models are summarized. The model of Jensen and Meckling has been selected as it illustrates the problems of separation of ownership and control demonstratively.292

286 _{Cf. Greiling, D. (2009), p. 348.} 287 _{Cf. Holmstrom, B. (1979), p. 74.} 288 _{Cf. Alparslan, A. (2006), p. 34.}

289 _{Cf. Grossman, S. J., Hart, O. D. (1983), pp. 42-43; Holmstrom, B. (1979), p. 89.} 290 _{Cf. Wendt, S. (2011), p. 34.}

291 _{Cf. Piehler, M. (2007), p. 14.}

292 _{Cf. Alparslan, A. (2006), p. 4 who also focuses on selected models of} Principal Agent Theory in order to illustrate resulting problems; cf. Kräkel, M. (2015), pp. 271-283 who gives an overview of further models which illustrate the problem between managers and shareholders.

Concerning the behaviour of managers, Jensen and Meckling show the consequences if ownership and control of a company are separated.293

The most important model assumptions are: All tax-rates are zero, outside equity shares are non-voting shares, no other financial instruments apart from shares are available and that there is a single manager for the company with a fixed wage.294

Assuming that a manager owns the complete equity capital of a company, he takes decisions which will maximise his utility. He can receive utility in two different ways for his work effort. Either he earns pecuniary returns or he gets non-pecuniary returns e.g. in form of better furniture for his office or the respect of his employees. A trade-off between these two utility functions exists. If the manager increases the consumption of non-pecuniary returns, the pecuniary returns will decrease and vice versa. The manager chooses the combination of both utility functions that offers him the highest possible utility.295

In a first step the manager starts to sell 5 % of his equity capital to outside shareholders. His behaviour concerning utility maximisation is now changing as he only has to bear a part of the costs of his non-pecuniary benefits.296 _{As he} strives to maximise his utility he has to adapt the combination of utility functions by consuming more non-pecuniary benefits and less pecuniary ones.297 _This behaviour has the advantage for the manager that he can reduce his work effort for the company due to the fact that the incentive in form of pecuniary benefits has decreased simultaneously with his sold equity capital.298

293 _{The following explanations and examples base on the model of Jensen and} Meckling, cf Jensen, M. C., Meckling, W. H. (1976). Beside the agency problems between shareholders and managers the Agency Theory deals also with agency problems of debt capital which are not further considered in the context of this dissertation, cf. Ewert, R. (1989), pp. 285-289; Jensen, M. C., Meckling, W. H. (1976), pp. 333-343.

294 _{Cf. for detailed list of model assumption Jensen, M. C., Meckling, W. H.} (1976), p. 314.

295 _{Cf. Jensen, M. C., Meckling, W. H. (1976), p. 312; Lazar, C. (2007), p. 41.} 296 _{Cf. Hermanns, J. (2006), p. 43.}

297 _{Cf. Jensen, M. C., Meckling, W. H. (1976), p. 312.} 298 _{Cf. Hermanns, J. (2006), p. 44.}

The trade-off between company value and private consumption is illustrated graphically in illustration five. The ordinate measures the market value of the company and the abscissa measures the expenditure of the manager on non-pecuniary benefits. The line from point V on the ordinate to point F on the abscissa represents the manager’s utility possibilities, similar to a budget restriction. Point 𝑉̅ symbolizes the point at which he completely concentrates his work effort on the increase of market value of the company, thus on increasing its pecuniary benefits. Consequently, the highest company value is reached at this point. Moving along the line to point 𝐹̅ implies that he gives up parts of pecuniary benefits in favour of non-pecuniary benefits. Arriving at point 𝐹̅ means a total concentration of manager’s utility on non-pecuniary benefits. The slope of the line is -1. One currency unit which the manager uses for non-pecuniary benefits reduces the market value of the company by one currency unit. The manager’s tendency is represented by the utility curves U1, U2 etc. The point at which the manager reaches, under given conditions, maximum utility is where indifference curve U2 is tangent to line 𝑉𝐹̅̅̅̅. V* is the market value of the company, F* _{the costs of consumed non-pecuniary benefits. This implies that a potential} buyer is willing to pay price V* for the company, presumed that the new owner can force the old owner and manager to retain its current consumption F* of non- pecuniary benefits.299

299 _{Cf. Jensen, M. C., Meckling, W. H. (1976), pp. 315-317; Lazar, C. (2007), pp.} 40-41.

Source: Adapted from: Jensen, M. C., Meckling, W. H. (1976), p. 316 Illustration 5: Development of market value of company and manager’s

expenditures for private consumption

In a second step the old owner sells a share of its equity capital, 1 – 𝛼. The manager’s share is 𝛼. On condition that consumption of F* _{remains constant the} new owner pays a price in the amount of (1 − 𝛼) × 𝑉∗_{. Of course the assumption} that the new owner can force the old owner and manager to limit its consumption of non-pecuniary benefits is not realistic. The consequence of the reduction of shares in equity capital for the manager is that he no longer has to pay one currency unit per consumed unit of non-pecuniary benefit, but only 𝛼 × 1

currency unit. The line 𝑉𝐹̅̅̅̅ shifts to V1F1. This line has a slope of −𝛼. The line V1F1 also has an intersection point with line 𝑉𝐹̅̅̅̅ in point D because the manager still has the consumption possibility he had as the only owner before. But the manager wants to maximize his utility, so he chooses point A. He increases its consumption of non-pecuniary benefits at the expense of the company value which falls to point V0. The difference between V* and V0 represents the cost of the additional consumption of the manager.300

Provided that market participants act on rational expectations, a buyer is not willing to pay (1 − 𝛼) × 𝑉∗ _{for the equity capital of the company. He is aware} of the fact that the manager increases his consumption of non-pecuniary benefits while selling shares of equity capital. So, he includes this fact in his price calculation.301

The wealth of the manager consists of two parts: The first part is the payment he receives from the new buyer for his sold share of equity capital (𝑆0). The second part is the value of his remaining equity capital (𝑆𝑖). This value can also be expressed as a function of its fractional ownership (𝛼) and the level of consumption of non-pecuniary benefits (F).302

𝑊 = 𝑆0+ 𝑆𝑖 = 𝑆0+ 𝛼 × 𝑉(𝐹, ∝)

Source: Formula adapted from: Jensen, M. C., Meckling, W. H. (1976), p. 318 Formula 3: Composition of manager’s wealth

with

𝑊 = manager’s wealth

𝑆0 = purchase price of sold equity capital

𝑆𝑖 = market value of manager’s remaining equity capital

𝛼 = manager’s share in company’s equity capital

𝑉 = market value of company

300 _{Cf. Jensen, M. C., Meckling, W. H. (1976), pp. 317-318.} 301 _{Cf. Jensen, M. C., Meckling, W. H. (1976), p. 318.} 302 _{Cf. Jensen, M. C., Meckling, W. H. (1976), p. 318.}

𝐹 = market value of manager’s expenditures on private consumption

The line V2F2 with the slope of −𝛼 represents the manager’s trade-off between private consumption and his wealth after the sale. The more he consumes privately the more the investor will reduce the selling price. The manager decides to sell a share of (1 − 𝛼). As in the previous situations he maximises his utility when he decides for the level of private consumption where the line V2F2 is tangent to the highest lying utility curve, here U3. At point B the optimal purchase price for both parties is reached. The company value is V’.303

It can be proved that both parties will always agree on point B as a purchase price. If the manager decides to sell his share at a point located to the left of point B on the line 𝑉𝐹̅̅̅̅, the company value and therefore the price of shares increases. With an increasing firm value the value of its remaining shares raises but also the value of the fraction (1 − 𝛼) of equity capital is on the rise.304

(1 − 𝛼) × 𝑉′ _{> 𝑆0}

Source: Formula adapted from: Jensen, M. C., Meckling, W. H. (1976), p. 318 Formula 4: Comparison of company value and purchasing price for equity

capital under the condition of lower non-pecuniary consumption Formula four shows that the value of the new owner’s equity capital is larger than the payment the manager receives. As he strives to maximise his utility he will increase its level of private consumption until that point at which the value of the sold equity capital equals its received payment.305

If the manager decides to sell his share at a point located to the right of point B on the line 𝑉𝐹̅̅̅̅, the company value decreases due to the increased consumption of non-pecuniary benefits. The new owner has paid too much for its shares.306 303 _{Cf. Jensen, M. C., Meckling, W. H. (1976), p. 318.} 304 _{Cf. Jensen, M. C., Meckling, W. H. (1976), pp. 318.} 305 _{Cf. Jensen, M. C., Meckling, W. H. (1976), p. 318.} 306 _{Cf. Jensen, M. C., Meckling, W. H. (1976), p. 318.}

(1 − 𝛼) × 𝑉(𝐹, 𝛼) < 𝑆₀= (1 − 𝛼) × 𝑉′

Source: Formula adapted from: Jensen, M. C., Meckling, W. H. (1976), p. 318 Formula 5: Comparison of company value and purchasing price for equity

capital under the condition of higher non-pecuniary consumption Both parties will only accept the purchase price 𝑆0, if it represents the current value of the company (1 − 𝛼) × 𝑉′_.

Referring to formula three the manager’s wealth after the sale of equity capital corresponds to the reduced market value of the company.307

𝑊 = 𝑆0+ 𝛼 × 𝑉′= (1 − 𝛼) × 𝑉′+ 𝛼 × 𝑉′ = 𝑉′

Source: Formula adapted from: Jensen, M. C., Meckling, W. H. (1976), p. 319 Formula 6: Manager’s wealth after sale of equity capital

Considering this fact means simultaneously that the reduction of company value does only impact the manager. His wealth is reduced by the difference between V* _{and V’. These costs are agency costs in the form of a residual loss. The} loss concerning the company value is partly compensated by the increase of private consumption from F* to F’. The triangle, limited by the points D, B and C, represents the loss in welfare due to agency costs for the manager.308

The explanations of Jensen and Meckling prove the existence of agency conflicts and agency costs in companies where ownership and management are separated.309

The structure of separated ownership and control is a feature of publicly- listed companies which are in the focus of this dissertation. Therefore, it is assumed in the following that agency conflicts between management and

307 _{Cf. Jensen, M. C., Meckling, W. H. (1976), pp. 318-319.}

308 _{Cf. Jensen, M. C., Meckling, W. H. (1976), p. 319; Lazar, C. (2007), pp. 42-44.} 309 _{Cf. for similar conclusion Kräkel, M. (2015), p. 279; Paulitschek, P. (2009), p.} 48.

shareholders respectively potential investors exist.310 _{These insights of agency} theory are confirmed by empirical studies.311

Of course there are also agency conflicts between management and other stakeholders. But in contrast to equity capital providers these stakeholder claims are based on contracts and are therefore better protected. Equity capital providers only have residual claims after the satisfaction of the claims of all other stakeholder groups.312

2.2.4.2 Accounting and reporting of key figures as important tools for reducing