The consideration of costly information and transactions costs leads to important modifications in the neoclassical theory of the firm. New approaches have included analysis of agency costs, information asymmetries, and signalling behaviour. Consideration of these additional dimensions has raised questions of whether the valuation of the firm is affected by variations in the patterns of contracting among different combinations of suppliers of capital, bearers of risk, and managers of productive activities. Parallel with the new developments in the theory of finance, an impressive body of empirical evidence has appeared.' Theoretical propositions have been tested, using the latest and best developments in quantitative methods.

Required

In reference to the empirical agency theory literature, critically analyse and explain the proposition that private and individual consumption by the manager of the firm's wealth costs him only in proportion to the fraction of his ownership of the firm, the remainder being borne by the other owners.