Agency theory recognises two kinds of information consumers. Which of the following describes the relationship between them?
A) Principals hire agents to make decisions for them.
B) Agents hire principals to hold them accountable for decisions.
C) Principals and agents work together in the best interest of the organisation.
D) Principals are government employees, while agents work in the private sector.

Question

Quizplus · Accepted Answer

Agency theory describes the relationship between principals and agents, where principals hire agents to make decisions on their behalf. Principals often do not have the time, expertise or resources to make certain decisions, and hence delegate decision-making authority to agents. However, this creates a potential conflict of interest, where agents may act in their own self-interest, rather than the interests of the principals or the organisation.

Agency Theory Recognises Two Kinds of Information Consumers