Which of the following is a true statement about Agency Theory?
A)A strong organizational culture will increase productivity within a firm
B)Segmenting the organization into agencies allows freedom to perform at higher levels
C)Non-managerial employees require more incentives than managerial employees in order to feel like they are a part of the firm
D)Agents will act in a way that provides the most benefit to them and not the owners of the firm,unless we provide the agent with incentives to act in ways to benefit the owners
E)Agents will always act in a way that benefits the owners unless there are incentives in place to act in a way that benefits themselves more

Question

Quizplus · Accepted Answer

Agency Theory suggests that agents (employees) will act in a way that provides the most benefit to them and not necessarily the owners of the firm, unless incentives are put in place to align their behavior with the goals of the firm. This is known as the principal-agent problem. Option A is incorrect as it discusses organizational culture rather than Agency Theory. Option B is also incorrect as it is unclear what is meant by "segmenting the organization into agencies" and how it relates to Agency Theory. Option C is incorrect as it makes a blanket statement about non-managerial employees requiring more incentives without any context or explanation. Option E is incorrect as it suggests that agents will always act in a way that benefits the owners, which is not necessarily true in the context of Agency Theory.

Which of the Following Is a True Statement About Agency