Agency Theory

 There is a separation of the owners (principals) and the managers (agents) of a firm, the potential exists for the wishes of the owners to be ignored. This fact and the recognition that agents are expensive, established the basis for a set of complex but helpful ideas.

So, Agency theory  is A set of ideas on organizational control based on the belief that the separation of the ownership from management creates the potential for the wishes of owners to be ignored.

According to J.C. Vanhorne said” Agency is a branch of economics relating to the behavior of principles(such as owners) and their agents(such as managers).”

Agency theory is the analysis of how asymmetric information problems affect economic behavior.

Agency theory is the analysis of principal-agent relationships, in which one person, an agent, acts on behalf of another person, a principal.


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