Question

Please explain the agency theory

Answer 1

Agency theory tells us the way we can best manage the relationships between the work determiner and work executor. In the corporate world, this relationship is called the “principal-agent” relationship. Here, the principal hires an agent to perform certain work which he do not able to perform and delegates to the agent. For example, in a company, the shareholders are the principals and the management is performing the job of agent where they execute the company’s work for the shareholders and excel their wealth. Both the principal and the agent are to perform their part to fulfill their own goals.