Part one of term paper
The quote shows a strong relation to the efficient market hypothesis (EMH), as it implies that the costs of capital are dependent from the amount of information given by the company. According to my opinion, agency theory is a good explanation for costs of capital. Agency theory defines contracts as under which one party – called princi ...

Part two of term paper
... to the rise of agency costs. Agency costs are the welfare reduction by the principal due to the divergence of the interest. There are three agency costs (1) monitoring costs, (2) bonding costs, and (3) residual loss. (1) Monitoring costs are the costs of monitoring agent’s behaviour. They are expenses of the principal to measure, observe, and control the agent’s behaviour. Good examples for monitoring costs are auditing costs. To protect themselves of huge monitoring costs principal ...