Agency Theory: Principal-Agent Problems

Corporate Governance
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Abiodun, Nottingham

Agency Theory: Principal-Agent Problems

I need to understand the principal-agent problems that arise in organisations. Thanks...


Bruno, Peru

Principal Agent Problems

Agency Theory refers to the delegation of work from one party to another.
The principal delegates work to an agent.
In the case of a corporation, the term of 'principal' corresponds to owners and 'agent' to directors.
Conflicts of interest can arise such as:
- The agent misusing his power for pecuniary or other advantage;
- The agent not taking appropriate risk in pursuance of the principal´s interests due to the dimension of the risk can be different between both;
- Information asymmetry can be another problem due to different levels of information they have.

Turnaround Manager, Zimbabwe

Agency Theory: The Principle-agent Problem

I agree with Bruno. Adding to the detail, the result of such conflicts will typically be that agents pursue self serving interests, including personal enrichment at the expense of maximizing shareholder wealth.
The diversion of interests between principals and agents is the major problem in Agency Theory.
Eventually there will be a need to align the divergent interests of the principals and agents which in itself will be yet another problem.

Obert Chinhamo
Director, Zimbabwe

Principal-agent Problems in Agency Theory

Reading more about the agency theory of corporate governance will provide you with the theoretical l... Sign up

Jaap de Jonge
Editor, Netherlands

List of Agency Problems

Boot and Cools (2007) mention the following 8 categories of agency problems in the relationship betw... Sign up

K.Narayana Moorthy
HR Consultant, India

The Agency Theory and Principal-Agent Problems

The Agency Theory enunciates reactions between the principal and the agent in terms of: - Goal orie... Sign up

Michael Holford
Project Manager, South Africa

Agency Theory: Continuing Conundrum!

Whether from a private of public perspective, relationships between management and principles need s... Sign up


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