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The study develops a mathematical model of the firm to derive theoretical foundations for the balanced scorecard concept (BSC). The model is based on several parts which are integrated into a company model. This model includes the demand function, the production function and the objective function of the firm which are depicted by traditional microeconomic concepts. Demand is presented as a function of price and customer relationship management (CRM) costs. Production is assumed to depend on labor, capital, and development and learning (D&L) costs. Simple dynamics is included both in the demand and production function. The strategy of the firm is depicted by the objective function based on profit and net sales. The output variables of the model are classified as the four perspectives of BSC. The effects of the objectives (strategies) on the importance (shadow prices) of the constraints are analysed. It is shown that a change in the objectives may alter the order of their importance. Thus, a change in the strategy should be accompanied with a change in the focus of BSC. Furthermore, non-financial and financial performance ratios may change in opposite directions, when the strategy is shifted towards revenue maximization. Thus, inconsistencies with the interpretation of cause and effects may emerge, when the strategy is shifted. Numerical examples are presented to demonstrate the results.

Agency Theory has been used to explain a wide range of economic issues related to finance. However, agency models have so far been unable to explain financially 'honest' behavior on the part of a firm's managers. This may be due to the undue importance they attached to the individual pursuit of wealth. An agency model that seeks to explain honesty in debt markets is developed.