Agency Theory

Posted in Finance, Accounting and Economics Terms, Total Reads: 2126
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Definition: Agency Theory

The basic premise of the agency theory is that the principal and agent in an agency relationship should be on the same page.

It tries to resolve the two basic conflicts in an agency relationship:

  • Conflict of interest between the Agent and the Principal
  • Problem when the Principal is not able to monitor and verify the work of the agent

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