In the context of agency theory, information asymmetry refers to the idea that:
A)information can vary in its reliability.
B)information can vary in its relevance.
C)management has more information about the entity's true financial position than do the absentee owners (i.e., stockholders).
D)management likely will not act in the best interests of the absentee owners.

Question

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Information asymmetry in agency theory specifically refers to the situation where one party (in this case, management) has more or better information than the other (the stockholders), particularly regarding the entity's true financial position. This concept is foundational in understanding the challenges in principal-agent relationships, where the agent (management) may have incentives not aligned with those of the principal (stockholders).

In the Context of Agency Theory, Information Asymmetry Refers to the Idea