Question

1.) Stealing would be an example of agency costs but shirking would not.

True or False

2.) Anne is the manager of a call center and has 5 supervisors directly reporting to her. She reports to the VP of Marketing. Because Anne is an employee she would be considered an agent but not a principal according to Agency Theory.

True or False

Answer 1

Answer: 1. FALSE

Agency cost is the conflict between agent and principal or the cost that increase the operating cost of the company but does not provide any benefits to shareholders. Stealing is considered as agency cost it may be stealing of appropriate information or any kind of amount or else. And shirking may happen to employees/ agent when they does not consider their responsibility towards the company and it leads to agency costs. When they don't get appreciated, it is the behaviour of the agent towards the principal.

2. TRUE

In an agent and principal relationship for the company the management of the company is considered as the agent and principal is an individual who gives authority to other to work on his behalf and to whom agent reports. In this case, Anne reports to the VP of Marketing and Anne can be considered as the head of the employees and presenting the agent.