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Agency theory


Agency theory is the basis of the theory underlying the company's business practices are used for this. The theory stems from the synergy of economic theory, decision theory, sociology, and organizational theory. The main principle of this theory suggested a working relationship between the parties that the investor authorizes the parties to whom the authority (agency) is the manager. The separation of owners and management in the accounting literature called the Agency Theory. This theory is a theory that emerged in the development of accounting research which is a modification of the development of financial accounting model by adding aspects of human behavior in economic models.
Agency theory basing the contractual relationship between the shareholders / owners and management / manager. According to this theory the relationship between owners and managers created intrinsically difficult because of conflicting interests. In the theory of agency, the agency relationship arises when one person or more principal employs another person (the agent) to provide a service and then delegate decision-making authority to the agent. The relationship between the principal and the agent can lead to an imbalance condition information (asymmetrical information) because the agent is in a position that has more information about the company than the principal. Assuming that individuals act to maximize self-interest, then with its asymmetry of information will encourage agents to hide some information that is not known to the principal. The asymmetry in the conditions, the agent can affect the accounting numbers presented in the financial statements by way of earnings management. One way that is used to monitor and restrict the contract issue is the management of opportunistic behavior of corporate governance. Fundamental principles of corporate governance that need to be considered for the implementation of good corporate governance practices are; transparency, accountability, justice (fairness), and responsibility.
Corporate governance is directed at reducing the information asymmetry between principal and agent, which in turn is expected to minimize the profit management action. Later, the agency problem will also arise if the management company or the agent does not or less have the company's common stock. Because with this situation makes the management no longer seek to maximize corporate profits and they are trying to take advantage of the burden borne by shareholders. Ways in which the management is in the form of increased wealth and also in the form of pleasure and facilities of the company. Described in Jensen and Meckling (1976), Jensen (1986), Weston and Brigham (1994), that the agency problem can occur in two forms of relationships, namely; (1) between shareholders and managers, and (2) between shareholders and creditors. If a company in the form of individual enterprise managed by the owner, it can be assumed that the manager-owner will take every possible measure, to improve welfare, especially measured in the form of increased personal wealth and also in the form of pleasure and executive facilities. However, if managers have a portion of their ownership and reduce its ownership rights by forming a company and sell part of the company's shares to outsiders, the conflict of interest bias arises immediately. This situation makes the manager may not be so persistent again to maximize shareholder wealth because the wealth of its quota has been reduced in accordance with a reduction in their holdings. Or maybe just a great manager sets the salary for himself or add executives facility, as part of which will be borne by the other shareholders. The conflict between shareholders with creditors creditors receive the money in a fixed amount of the company (interest on debt), while revenues depend on the amount of shareholder profit the company.In this situation, lenders pay more attention to the company's ability to repay its debt, and shareholders of the company for more memperhatikankemampuan obtain large returns on the project is melakukaninvestasi ± risk projects. If the project is successful, the risk that the creditor can not enjoy such success, tetapiapabila projects fail, creditors will probably suffer kerugianakibat of the inability of shareholders to meet kewajibannya.Untuk anticipate the possibility of a loss, then the lender to restrict the use of debt by the manager. One of the restrictions is to limit the amount of use of debt for investment in the project baru.Konflik between shareholders with the manajemenWalaupun has made a valid employment contract between the principal and the agent, but on the other hand the agent has more knowledge about the company (full information) in comparison with the knowledge possessed by the principal. More knowledge possessed by the agentdibandingkan with the knowledge possessed by the principal is membuatterbentuknya an asymmetry of information or asymmetric information
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