Agency theory

Similar financial terms

Agency sector
Securities issued by federally related institutions and government sponsored enterprises such as the Federal Home Loan Mortgage Corporation, Fannie Mae and Freddy Mac Foundation.

Agency problem
The conflict of interest between principal (e.g. shareholders) and agent (e.g. managers) in which agents have an incentive to act in their own self-interest because they bear less than the total costs of their actions.

Agency costs
The cost of resolving the agency problem. These might include stock options and bonus schemes to managers.

Agency bank
A form of organization commonly used by foreign banks to enter the U.S. market. An agency bank cannot accept deposits or extend loans in its own name; it acts as agent for the parent bank.

Agency basis
A means of compensating the broker of a program trade solely on the basis of commission established through bids submitted by various brokerage firms. agency incentive arrangement. A means of compensating the broker of a program trade using benchmark prices for issues to be traded in determining commissions or fees.

Agency cost view
The argument that specifies that the various agency costs create a complex environment in which total agency costs are at a minimum with some, but less than 100%, debt financing.

Agency pass-throughs
Mortgage pass-through securities whose principal and interest payments are guaranteed by government agencies, such as the Government National Mortgage Association (" Ginnie Mae "), Federal Home Loan Mortgage Corporation (" Freddie Mac") and Federal National Mortgage Association (" Fannie Mae").

Agency incentive arrangement
A means of compensating the broker of a program trade using benchmark prices for issues to be traded in determining commissions or fees.

Dow theory
A theory contending that a primary market trend - one that will last for a year or more - will follow the movements in at least two of the three Dow Jones Averages (industrial, transportation and utilities). The theory is based on the belief that trends follow movements set by the indexes.

Static theory of capital structure
Theory that the firm's capital structure is determined by a trade-off of the value of tax shields against the costs of bankruptcy.

Pure expectations theory
A theory that asserts that the forward rates exclusively represent the expected future rates. In other words, the entire term structure reflects the markets expectations of future short-term rates. For example, an increasing sloping term structure implies increasing short-term interest rates. Related: biased expectations theories

Preferred habitat theory
A biased expectations theory that believes the term structure reflects the expectation of the future path of interest rates as well as risk premium. However, the theory rejects the assertion that the risk premium must rise uniformly with maturity. Instead, to the extent that the demand for and supply of funds does not match for a given maturity range, some participants will shift to maturities showing the opposite imbalances. As long as such investors are compensated by an appropriate risk p ...

Normal backwardation theory
Holds that the futures price will be bid down to a level below the expected spot price.

Modern portfolio theory
Principles underlying the analysis and evaluation of rational portfolio choices based on risk-return trade-offs and efficient diversification.

Market segmentation or preferred habitat theory
A biased expectations theory that asserts that the shape of the yield curve is determined by the supply of and demand for securities within each maturity sector.

Local expectations theory
A form of the pure expectations theory which suggests that the returns on bonds of different maturities will be the same over a short-term investment horizon.

Liquidity theory of the term structure
A biased expectations theory that asserts that the implied forward rates will not be a pure estimate of the market's expectations of future interest rates because they embody a liquidity premium.

Shingle Theory
A suitability doctrine first introduced by the SEC in the 30's. The idea is that a broker who hangs out a shingle will represent his/her customers fairly and responsibly when making suggestions regarding securities.

Bubble theory
Security prices sometimes move wildly above their true values.