Abstract
This paper studies the agency cost due to managerial perquisites behaviors with the stochastic optimal control model. The results show that the agency cost is a descending convex function of the assets/debt ratio, i.e., the agency cost rises with managerial perquisites. Besides, based on a further study of the agency cost under the context of economic transition, we find that the agency behavior is characterized by being observable but unverifiable on condition that exogenous institutions are uncertain.
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