Agency theory deals with the issue of
A) when to hire an agent to represent the firm in negotiations.
B) the legal liabilities of a firm if an employee, acting as the firm's agent, injures someone.
C) the limitations placed on an employee acting as the firm's agent to obligate or bind the firm.
D) the conflicts that can arise between the viewpoints and motivations of a firm's owners and managers.

Question

Quizplus · Accepted Answer

Agency theory deals with the conflicts of interest that can arise between the owners (shareholders) and managers of a firm. These conflicts can arise because the owners want the firm to maximize profits and increase share value, while managers may have other goals such as maximizing their own compensation or job security. The theory explores how to align the interests of owners and managers to reduce these conflicts and improve overall firm performance.

Agency Theory Deals with the Issue of