Company Agency Relationship Study

The economy constitution reformation in China has been gotten great achievements, in the last 30 years. On the one hand, the companies owned by the nation based on planning economy are transformed into typical modern corporations taking company operation in the market economy. On the other hand, economy not owned by the state is developing quickly. So a lot of privately owned corporations with clear ownership and flexible running have come into being. These corporations are also transforming from proprietorship into public companies of modern enterprises. The essential features of modern corporation constitution are the separation of ownership and operation, and based on this consignment relationship in the corporation operation process is formed.The object in the analysis of the consignment relationship in the operation process is corporation. It analyzes two-person economy systems involving principal and agent. In the discussing of principal-agent relationship, it is assumed that the company assets scale is defined, the level of production technology is at a certain level, and the social political environment is stable. Based on these conditions, the thesis analyzes the following: in various market conditions, if the agents (manager) produce the same management efficiency, what output, profit and utility level a principal (stock-holder and the board) and a agent can get. Before the principal and committee establish principal-agent relationship, and sign the consignment-agency contract, we should consider how to make the business big, maximize profit, and then following some rules to get the most utility (How to cut the cake to make both party win.). The essence of principal-agent relationship is how we can achieve the principle's best utility on the basis of ensuring agent's best utility. A company's achievement is usually measured by benefit. If we omit all the other factors, the benefit is the function of management efficiency and market condition. The management efficiency depends on the agent's ability and effort. The principals' utility varies with the profits and the payment to the agents from these profits. The net utility got by the agents is decided by the payment and the efforts they have made, at the same time is influenced by remained utility. As a result, principals are concerned with the profit got from the principal-agent contract and the payment paid to the agents, while agents care for the net utility from the principal-agent contract and the stimulations given by their principals. According to such thinking, we construct a mathematic model to express the relationship between principals and agents in company operation, and the principal-agent model is a model about principals (share holders or the board )maximizing their utility in the condition that agents (managers) take part in compatible restraint and stimulation.The information in the relationship between principals and agents in the company operation is asymmetric. The participants with information advantages or private information are the agents, and the participants without information advantages or private information are the principals. Analyzing the participants in the relationship between principal-agent in the company operation, all the share-holders of the company (or the board) are the principals and the managers the agents. However, the principal-agent model under symmetrical information condition was analyzed specially at the fourth part of this thesis, offering a reference system for the principal-agent model under asymmetric condition. In the study of the principal-agent model under the symmetrical information condition, the concerning characteristics of the relevant functions, the remained utility and the determination of the management efficiency are discussed. The moral risk and adverse selection in the company's principal-agent relationship are discussed under the condition of asymmetrical information. The efficiency that the agent (manager) offers in managing a company depends on the manager's ability and diligence. In the research of the adverse selection, it is assumed that there's information asymmetry between principals and agents about the ability level of the agent (manager). A principal has no way to know the ability of the agent (manager) when designing the agreement, but the agent is very clear that under this circumstance of asymmetrical information for the agreement designed by the principal not only accepted by the agent, but also maximize the principal's utility, the essence of the question is adverse selection. The fifth part of the thesis analyzes principal-agent model with adverse selection, information rental, and Pareto Most Excellent Efficiency. The sixth part analyzes moral risk. In this part, firstly the existence of moral risk is analyzed, namely, when principals (shareholders or the broad) do not fully know the efforts the agents (managers) offered during the operation, (even if it can be partly observed but still can't totally confirm.), but the agent himself knows, there is evident moral risk in the principal-agent relationship under the asymmetrical information condition. And then, the sixth part analyzes the issue of optimum choice under different effort level, and moral risk question in the situation of conceded information.The thesis introduces the adverse choice and moral risk under asymmetrical information conditions into principal-agent relationship and has got some valuable conclusions. The discuss is based on Game Theory, Contract Theory, Principal-agent Theory, guided by System Theory, Economy Theory, Management Theory, and with the application of investment-output technology, mathematical model system optimization and so on, and it takes the company as the research object. The innovations of the thesis are in 3 aspects:(1) In the corporation's principal-agent relationship system, the thesis puts forward two factors affecting corporation's profit: the management efficiency that agent offered to the corporation and market state. A profit function is constructed with these two factors. Following that the theses analyzes the management efficiency, and then get the result that the management efficiency depends on the agent's ability and diligence.(2) By analyzing general principal-agent model and combining special cases in corporation principal-agent relationship, the thesis takes agent's ability level in the asymmetrical information condition as adverse choice research in principal-agent relationship. The agent's diligent level in the asymmetrical information condition is considered as moral risk in the research of principal-agent relationship. So the optimum principal-agent model has been built.(3) The thesis analyzes the moral risk under the condition of asymmetrical market information, and then devises a mathematical model to reveal the management information possibly hidden by the agent and the corporation's real profit level hidden by the agent in order to pursue his maximum utility. The model has some value in guiding the defining of basic profit planning.