Case Essay

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American Economic Association Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers Author(s): Michael C. Jensen Source: The American Economic Review, Vol. 76, No. 2, Papers and Proceedings of the NinetyEighth Annual Meeting of the American Economic Association (May, 1986), pp. 323-329 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/1818789 Accessed: 10/09/2009 10:27 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/action/showPublisher?publisherCode=aea. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit organization founded in 1995 to build trusted digital archives for scholarship. We work with the scholarly community to preserve their work and the materials they rely upon, and to build a common research platform that promotes the discovery and use of these resources. For more information about JSTOR, please contact support@jstor.org. American Economic Association is collaborating with JSTOR to digitize, preserve and extend access to The American Economic Review. http://www.jstor.org Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers By MICHAEL C. JENSEN* Corporate managers are the agents of shareholders, a relationship fraught

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