In the context of agency theory, which of the following is a difference between agents and principals?
A) Agents are the owners of a business, whereas principals are the managers of a business.
B) Agents take risks when they make decisions, whereas principals do not take risks.
C) Agents are less likely than principals to focus on a short time horizon.
D) Agents often have more information about the day-to-day business than do principals.

Question

Quizplus · Accepted Answer

Agents, such as managers or employees, typically have more detailed information about the daily operations and the specific circumstances of a business than principals (e.g., shareholders or owners). This information asymmetry is a central concern in agency theory, as it can lead to agency problems where agents may not always act in the best interest of the principals.

In the Context of Agency Theory, Which of the Following