Loyalty and Agency Problems: Study Comparing France Tunisia – Agency problems

Agency theory is an extension of the theory of property rights. It is based on the concept of agency relationship that helps to formalize the relationship between agents with different interests and determine the most appropriate incentives to different situations. The rise of agency theory is marked by an article published in 1976 in the Journal of Financial Economics, written by Jensen and Meckling on theories of the firm. According to these authors, there are in all corporations, a potential divergence of interest between the legal and financial authorities are bound by an agency relationship. In this theory, the company is described as a true knot of contracts in which a set of relations established between the different stakeholders.
Theorists call this agency relationship between managers and shareholders of contractual relationship can be defined as an agency relationship in which “one or more persons, (s) principal (to), commits (s) of another person (the agent) to act on his (their) name (s) a task involving a delegation of adjudicative “(Jensen and Meckling, 1976). By this definition, the contract between the manager and the shareholder has two essential characteristics:
1    – It means a representative function of the shareholder (the principal) by the leader (agent) in a given area.
2    – This is a contract with delegation of decision-making power to the leader of the shareholder.
The agency theory is based on two complementary assumptions: First, the objective of shareholders is profit maximization. On the other hand, the leader seeks to take advantage of the incompleteness of the contract (Charreaux, 1992). It is in this sense that the works on corporate governance have taken their starting point, and the arguments that favor the model “Shareholder” in which leaders must work in the interests of shareholders. There is therefore no reason to suppose that the manager and the shareholder have the same preferences. Indeed, the shareholder (principal) seeks to maximize its profit, while in some cases, the leader makes a decision for an investment project that will achieve a result opposite to the interests of shareholders without losing pay.
This divergence of interest gives rise to conflicts and agency costs, the nature and extent depend on several factors.
First, and consistent with the analysis of Jensen and Meckling, there is a large gap between the objectives of maximizing the utility of managers and shareholder wealth. The leader tries to strengthen its position at the head of the company (Charreaux, 1997). He can spend the resources of the company in various fringe benefits. He prefers growth in turnover to that of profit. The goal is to serve the office of the company before meeting the interests of shareholders (profit distribution, upgrading of tracks, etc.).. This behavior reduces, accordingly, the value of the company and its future challenges.
Then, the leaders refuse to invest in risky projects because the risks are similar. The officer may lose his job and especially its value in the labor market, while the shareholder loses only its inputs (Fama, 1980). In this context, Harris and Raviv add that, in the case of a company in difficulty, the leaders are encouraged to continue the implementation of current operations even if shareholders prefer liquidation of the company.
Finally, once the contract is signed and is guaranteed his position in the company, the leader behaves in an opportunistic manner because of information asymmetry in favor. It invests in specific projects and reduces effort. Many studies state that the management entrenchment is related to the behavior of non-maximization of shareholder wealth. Shleifer and Vishny, Morck et al and Paquerot considered the root is the source of inefficiency in the work of the latter. They showed the negative effect of management entrenchment of shareholder wealth.
This behavior of management entrenchment and conflicts of interest occur agency costs. These are supported both by the shareholder and the manager: Minotoring costs, Bonding costs, Residual loss.
With this in mind the difference of interest is the question: What is the strategy and practices adopted to reduce agency problems? Subsequent developments have proposed governance arrangements as a solution to these problems. for illustrative purposes, debt, boards, incentive compensation, mechanisms for external controls. Shleifer and Vishny, Jensen show that these mechanisms have limited effectiveness, hence the need to resort to other means, the focus will be on retention.