Significant attention has been devoted to agency theory in the financial literature. Dating back to the seminal contribution of Jensen and Meckling (1976), financial economists have examined agency relationships mainly in the context of shareholders versus managers, and shareholders versus creditors. The purpose of this essay is to document the existence of additional agency problems created as a result of the adoption of the Bankruptcy Reform Act of 1978. An introduction to the bankruptcy environment and the main features of the Bankruptcy Reform Act of 1978 (hereafter referred to as the Act) are followed by description of the agency problems arising out of the 1978 Act.
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