DEACCESSIONING AND AGENCY COSTS OF FREE CASH FLOW IN MANAGER'S HANDS: A FORMAL MODEL 1

The problem of agency costs of free cash flow in manager's hands has been firstly noted by Easterbrook and Jensen. We present one of the first attempts to formally model the problem in light of similar situation faced by managers of museums being allowed (or disallowed) to deaccession the artwo...

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Bibliographic Details
Published inEconomic and business review for Central and South-Eastern Europe Vol. 16; no. 3; p. 225
Main Author Srakar, Andrej
Format Journal Article
LanguageEnglish
Published Ljubljana University of Ljubljana, Faculty of Economics 01.09.2014
Subjects
Cash flow
Commissions
Museums
Studies
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Summary:The problem of agency costs of free cash flow in manager's hands has been firstly noted by Easterbrook and Jensen. We present one of the first attempts to formally model the problem in light of similar situation faced by managers of museums being allowed (or disallowed) to deaccession the artworks from their collections. We show that deaccessioning funds always lead to various forms of agency costs for the museum. This finding applies for any non-profit firm and its endowment. The task lying ahead is to formally prove the general conjecture also for the case of private for-profit firms.
ISSN:1580-0466
2335-4216