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Agency Theory Re-Examined: An Agency Relationship and Residual Claimant Perspective

Although an agency perspective could help to understand modern companies in many aspects, it is wrong and perilous to equate the relationship within the company with simply an agency relationship or to emphasise the financial structure too much. Simply speaking, directors are much more than agents. Insulating boards from shareholders’ continuous intervention by giving boards of directors the sui generis position and extensive power could be seen as an important means to preserve the benefits of centralised management. On the other hand, stakeholders other than shareholders can equally enjoy a fraction of the surplus and become residual owners, and shareholders are not the only risk bearers owing to limited liability and diversification, among other things. Also, excessive risk-taking by shareholders along with the alienation of share interests could harm the best interests of the company and society. The company is its own residual claimant. Hence, it is of significance to reconsider agency theory in the context of corporate governance and not take it for granted when researching issues such as corporate objectives or directors’ duties.