Question 1 Agency theory is a management and economic theory that attempts to explain relationships and self-interest...

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General Management

Question 1
Agency theory is a management and economic theory that attemptsto explain relationships and self-interest in businessorganisations. It describes the relationship betweenprincipals/agents and delegation of control. It explains how bestto organise relationships in which one party (principal) determinesthe work and which another party (agent) performs or makesdecisions on behalf of the principal (Jensen and Meckling, 1976;Schroeder et al., 2011).

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Meaning and importance of Agency theory Agency theory is a concept which is used to detail and solve issues in the relationship between the principal and their agent Examples of Principal Agent relationship 1 Shareholders of the company as Principals and the Company executives as Agents 2 Owner of the company as Principal and the Attorney hired for legal work as Agents Economic theory of agency Agency theory is also called economic theory and is a part of field contract theory This theory explains and solves the problems related to principal See Answer

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