Simulation of Agency Costs of Manager-Owner Using the System Dynamics Approach: Study of Shiraz Petrochemicals

The purpose of this study is presentation of an agency cost model and simulation of these costs for Shiraz Petrochemical Company in a 100-month period.  In order to develop an agency cost model, firstly, using the historical recognition method in the framework of library studies, we extract the variables, mechanisms and relations existing between them. Then, a general and practical model is presented to simulate the agency costs of manager-owner for Shiraz Petrochemical Company using the software Vensim DSS. With the implementation of the developed model, it is found that the company's agency costs would increase over a period of 100 months. Therefore, several policies are introduced to reduce costs. These policies include the manager’s ownership of the stock (as a bonus) , an increase in the debt and the board efficiency. The results show that each of these policies, alone and in combination, can significantly reduce the agency costs. Introducing a systemic attitude in the field of accounting research, specifically the agency costs of manager-owner is innovation in this research.