MINIMIZE THE AGENCY PROBLEM INTRODUCTION The Company has the primary goal of improving the prosperity of the

owners or shareholders (Birmingham, 1986). The big differen e in interest between managers and shareholders will lead to onfli t in de ision!ma"ing. #oals are often only be a hieved if the owners of apital handed over the management of the ompany to a professional (managerial) and insiders often alled agents be a$se the owners of apital has many limitations. %ensen (19&6) said that the ompany whi h has the f$n tion of management and ownership f$n tions of the agen y will be prone to onfli t. The a$se of the onfli t between shareholders and managers is a de ision with regard to the so$r e of f$nds and de isions related to how the pro eeds are invested. ' ording Brigham and (ave (1999) the agen y problem an o $r between) first owners (shareholders) with a manager, two managers with debtholders, and three managers with shareholders. AGENCY THEORY *i hael C. %ensen and +illiam was develop this theory. This theory arises be a$se of the separation between owners and management. 'gen y relationship arises when an individ$al (employer,prin ipal) pays another individ$al (agent) to a t on his behalf, delegate the power to ma"e de isions to agents or employees. HOW TO REDUCE THE AGENCY PROBLEM -ow to .ed$ e 'gen y Confli t, 'gen y theory s$ggests several ways to red$ e the agen y onfli t, that is) 1. Debt Financing

'gen y problems within a firm are $s$ally related to free ash flow and asymmetri information problems. This is parti $larly tr$e for the ase of privately held debt. *oreover, that ban" debt has an advantage in omparison to p$bli ly traded debt in monitoring firm/s a tivities and in olle ting and pro essing information. 0or

e1ample, 0ama (1982) arg$es that ban" lenders have a omparative advantage in minimi3ing information osts and getting a ess to information not otherwise

p$bli ly available. Therefore, ban"s an be viewed as performing a s reening role employing private information that allows them to eval$ate and monitor borrowers more effe tively than other lenders. . I!"#$%ing Manage#ia& inte#e't'. The onfli ts of interest between managers and shareholders arise mainly from the separation between ownership and ontrol. %ensen (19&6) s$ggests that managerial ownership an align the interest between these two different gro$ps of laimholders and therefore red$ e the total agen y osts within the firm. (. Hie#a#c)ica& M$nit$#ing Clearly, monitoring is not a trivial tas", and there is no spe ial reason to believe that the prin ipal will be the best person to s$pply the monitoring servi es. 4omeone else, a spe ialist whom we may all a s$pervisor, may be able to offer the monitoring servi es more heaply and more e1pertly than the prin ipal herself. The res$lt will be a three!level (at least) hierar hy, in whi h the prin ipal attempts to ind$ e a s$pervisor to a t in the prin ipal/s own best interests, as the s$pervisor is monitoring the agent.

Tirole (1986) shows that, ideally, the prin ipal will pay the s$pervisor a flat wage for learning abo$t the agent/s efforts, this will res$lt in a de rease in agen y osts as the ris"!averse agent is in t$rn paid a (smaller) flat wage that ma"es both prin ipal and agent better off than wo$ld be possible witho$t monitoring. -owever, this ideal sol$tion is not imm$ne to a problem that Tirole identifies oll$sion between the s$pervisor and the agent. The s$pervisor and agent an ma"e themselves better off (with appropriate side!payments) when the s$pervisor a ts to prote t the agent from the san tions that sho$ld res$lt from inade5$ate performan e. 6n Tirole/s analysis, this ma"es hierar hies less effi ient, and fre5$ently, more rigid, as a res$lt of b$rea$ rati r$les that the prin ipal may impose to prote t herself from this oll$sion. Tirole also allows that, o$tside of his model, there are sit$ations in whi h oll$sion (more properly termed ooperation) will helpf$l. *. Di%i+en+ P$&ic,. 'nother way to red$ e agen y ost is to distrib$te dividends (.$th, 7889). 9spe ially ash dividend payment of dividends to shareholders is highly dependent on available ash position, 4$trisno (7881) whi h states that among several fa tors affe ting (ividend :ayo$t .atio, only fa tor ash position and (ebt to 95$ity .atio is a signifi ant effe t. 0ree ash flow of the ompany des ribes the position of ash a t$ally available for shareholders. CONCLU-ION 'gen y theory emerging from %ensen (19&6) refers to the f$lfillment of the main ob;e tive of finan ial management is to ma1imi3e shareholder wealth. +ealth

ma1imi3ation is performed by management alled agents. 'gen y problem is the inability or $nwillingness of management to in rease shareholder wealth res$lts. To alleviate these problems is to in rease managerial interest, 6nstit$tional ownership as a (ebt 0inan ing, 6mproving *anagerial interests, -ierar hi al *onitoring, and dividend poli y. REFERENCE<ingr$m, .i3"a :$tri, dan .atih -andayani. 7889. :engar$h =epemili"an *ana;erial,=epemili"an 6nstit$sional, (ividen, :ert$mb$han :er$sahaan, Free Cash Flow (an :rofitabilitas Terhadap =ebi;a"an -$tang :er$sahaan. %$rnal Bisnis dan '"$ntansi >ol. 11 <o. ? <arita, .ona *ersi. 7817. 'nalisis =ebi;a"an -$tang.
7 ' o$nting 'nalysis %o$rnal >ol. 1 <o.

'hmad, 'fridian +irahadi, dan @ossi 4eptriani. 7888. =onfli" =eagenan) Tin;a$an Teoritis dan Cara *eng$ranginya. %$rnal '"$ntansi A *ana;emen >ol ? <o.7