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.
D) management will not act in the best interests of the absentee owners.

Question

Quizplus · Accepted Answer

Information asymmetry in agency theory refers to the situation where one party (in this case, management) has more information or knowledge than the other party (absentee owners). In this case, management has more information about the entity's true financial position than do the absentee owners. This can create a potential conflict of interest between the interests of management and those of the absentee owners, as management may act in their own best interests rather than in the interests of the owners.

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