The Jensen-Meckling Model

The Jensen-Meckling Model is a concept in finance and economics that explains the relationship between shareholders and company managers. It highlights the conflict of interests that can arise because managers, who control the company's day-to-day operations, may act in ways that benefit themselves rather than the shareholders. This model suggests that to align the interests of managers and shareholders, companies can implement mechanisms like performance-based incentives or monitoring systems. By doing so, they can reduce the risk of managers taking actions that might harm the company's value or shareholders' investments.