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Agency Theory And The Separation Of Ownership Between Suppliers Of Capital Within A Firm Essay

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Agency Theory describes the incentives problems between agents and in a business and the business principals and the separation of ownership between suppliers of capital within a firm (Morris,1987). Agency theory is also concerned with undertaking problems that can exist in the agency relationships due to irregular goals, different aversion levels of risk and decision making with control functions in the firm (Morris, 1987). Agency Theory demonstrates that the precipitate will incur agency cost, which then has an incentive to reduce. The cost of agency is, to decline in a firm’s value when the shareholder managers when pursuing the shareholder interest, particularly when the managers act incompetently or they do not have a to choose a project, making a profit to the shareholders, lastly the cost of monitoring and bonding managers so in the end they share an interest with the shareholders (Morris, 1987). Agency theory is the separation of ownership and the resources that’s being controlled to explain the accounting choices within firms. Enron, was the world’s largest energy company in 2001. Enron forerunner, Northern Gas Company was incorporated in Delaware on April 25, 1930. From this date through July 1985, Enron had hundreds of purchases and new sub-entity constructions when they acquired Houston Natural Gas Inc. (Kastantin, 2005). On April 10, 1986, the company changed its name to Enron Corporation. Enron was an interstate and intrastate natural gas pipeline company,
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