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Efficient Market Hypothesis An
Beginning of paper
The quote shows a strong relation to the efficient market hypothesis (EMH), as it implies that the costs of capital are dependent from the amount of information given by the company.
According to my opinion, agency theory is a good explanation for costs of capital. Agency theory defines contracts as under which one party – called p .... Middle of paper .... to agents. An example can be given in lending: A high-risk company has high monitoring costs, which leads to a high interest rate. Another example would be the reputation of the manager: Has he got a bad reputation, than his salary would be lower than usual. Agents try to reduce monitoring costs by installing mechanisms to guarantee that they will behave in the interest of the principal or by proposing to compensate principals for their losse ....
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Number of words: 2757 Number of pages: 11 (approx. 250 words per double-spaced page)
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