According to agency theory, under what circumstances could companies eliminate agency costs?
A) If bonuses are based on financial performance
B) If they publish audited financial statements
C) If their shares are not traded on the stock exchange
D) Organisations cannot eliminate agency costs

Question

Quizplus · Accepted Answer

Agency theory suggests that there is an inherent conflict of interest between principals (owners) and agents (managers), leading to agency costs. These costs arise from the need to monitor, incentivize, and align the interests of agents with those of principals. Given the fundamental nature of these relationships in organizations, agency costs cannot be completely eliminated, only mitigated through various mechanisms.

According to Agency Theory, Under What Circumstances Could Companies Eliminate