Efficient Market Hypothesis An

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Miscellaneous

 

Written by:

Pamela P

 

Date added:

June 28, 2016

 

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University

 

Grade:

A

 

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10 / 2787

 

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6944 times

 

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This leads to the rise of agency costs. Agency costs are the welfare reduction by the principal due to the divergence of the interest. There are three agency costs (1) monitoring costs, (2) bonding costs, and (3) residual loss. (1) Monitoring costs are the costs of monitoring agent’s behaviour. They are expenses of the principal to measure, observe, and control the agent’s behaviour...
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They are expenses of the principal to measure, observe, and control the agent’s behaviour. Good examples for monitoring costs are auditing costs. To protect themselves of huge monitoring costs principals are bearing the costs to agents. An example can be given in lending: A high-risk company has high monitoring costs, which leads to a high interest rate...
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