Agency theory can be described as the theory of:
A)the relationship between the owner and the management of the business when the owner is not the manager of the business.
B)when the finance function is outsourced to an outside party,and the auditor is required to audit the outside party's work.
C)hiring an agency to review the work of the management,in this case it is the auditor.
D)none of the above.

Question

Quizplus · Accepted Answer

Agency theory deals with the relationship between the principal (owner) and the agent (manager) when the owner delegates decision-making authority to the manager. The theory focuses on how to align the incentives of the manager with the goals of the owner to ensure the efficient and effective running of the business. Option B is about outsourcing the finance function, and option C is about hiring an external agency to assess the work of the management team, which are not the central themes of agency theory. Option D is incorrect as agency theory is a well-established concept in management and organizational theory.

Agency Theory Can Be Described as the Theory Of