Agency theory

Agency theory

The analysis of principal-agent relationships, in which one person, an agent, acts on behalf of another person, a principal.

Agency Theory

The study of the relationship between an agent (such as a broker) and a principal (such as a client). Agency theory seeks to explain the relationship in order to recommend the appropriate incentives for both parties to behave the same way, or more specifically, for the agent to have the incentive to follow the principal's direction. Agency theory also seeks to reduce costs in disagreements between the two.
References in periodicals archive ?
It is shown by this approach that agency theory is not only a contracting theory between agents and principals, but a theory of performance of the agent.
For today's corporate law maximizers, the crucial moment in the history of post-war economic theory is Jensen and Meckling's introduction of agency theory in 1976.
For example, agency theory is a priori based on the axiom that managers behave opportunistically.
In agency theory, for instance, the manager in charge of the project may receive information about the project performance before the principal of the firm.
We suggest using this case after course coverage of agency theory to enhance understanding of agency theory, fiduciary duty and fraud.
The agency theory was first advanced in Shurgard Storage Centers,
Agency theory assumes that inherent conflicts of interest exist between the principal/owner and manager/agent, resulting in an agency-cost problem, which can be alleviated by distributing dividends to the shareholders.
6) As one of its independent variables, agency theory uses preference gaps between the military and civilians to help explain varying levels of civil-military friction.
Agency theory has two major variants: the positive variant has as it primary focus on monitoring activities take occur within the firm; the formal or principal-agent variant has as its primary focus on constructing optimal incentive contracts in the face of uncertainty.
If managers seek ever-more inventive ways of boosting share prices, paying themselves over the odds for doing so and offloading the costs on to society, they are just doing what B-school courses on strategy, transaction cost economics and agency theory have taught them which is to maximise the value of a company, product and themselves.
Agency theory takes the would-be professional managers that the pre-War business school idealized and turns them into opportunistic "agents" seeking to dupe the Jesus-like "principals" out of their hard-earned investment dollars.
This, in turn, has reignited interest among both academics and financial practitioners about agency theory issues, especially the question of whether or not the total compensation of CEOs is properly scaled in relation to the earnings they generate for the shareholders they serve.