Agency theory reflects the notion that managers are "agents" of the owners and suggests that public corporations can function effectively even though its managers are self-interested and do not automatically bear the full consequences of their managerial actions.

Question

Quizplus · Accepted Answer

This statement accurately reflects the basic principles of agency theory. According to this theory, managers are seen as agents who act on behalf of the owners (or shareholders) of a public corporation. As such, they are responsible for making decisions that promote the interests of the investors, rather than their own personal motives or desires. Although managers may have some degree of autonomy and discretion in their decision-making, they are ultimately accountable to the shareholders and subject to certain checks and balances that help to align their interests with those of the owners.

Agency Theory Reflects the Notion That Managers Are "Agents" of the Owners