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agency theory is to help devise techniques for describing the conflict inherent in the principal-agent relationship and controlling the situations so that the agent, acting from self-interest, does as little harm as possible to the principal's interest

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5mo ago

Agency theory describes the relationship between principals (such as shareholders) and agents (such as managers) in organizations. It focuses on potential conflicts of interest that may arise when agents make decisions on behalf of principals and suggests mechanisms to align the interests of the two parties. The theory aims to address issues of agency cost, control, and monitoring to ensure that agents act in the best interests of the principals.

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Q: How has the agency theory been described?
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Agency theory helps to align the interests of principals (shareholders) and agents (managers) by providing incentives for the agent to act in the best interest of the principal. Through mechanisms such as performance-based compensation and monitoring, agency theory aims to reduce agency conflicts and ensure that managers make decisions that maximize shareholder value. Additionally, agency theory provides a framework for understanding the relationships and responsibilities between principals and agents in a business setting.


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Agency theory is a theory explaining the relationship between principals, such as a shareholders, and agents, such as a company's executives. In this relationship the principal delegates or hires an agent to perform work. The theory attempts to deal with two specific problems: first, that the goals of the principal and agent are not in conflict (agency problem), and second, that the principal and agent reconcile different tolerances for risk.


How would you describe agency theory?

Agency theory pertains to the relationship between two parties; the first is the principal (or principals) and the second, the agent (or agents), who are engaged as employees or independent contractors.


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