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Agency theory

Agency theory

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Published by Kazim Khan
Study on agency theory
Study on agency theory

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Published by: Kazim Khan on Feb 20, 2011
Copyright:Attribution Non-commercial


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1 000602405 Kazim Khan
2 000602405 Kazim Khan
Agency theory and its importance inbusiness world
Abstract: -
The object of this paper is to investigate working of agency theoryand agency theory in the corporate governance define relationship betweenthe principal and agent mainly listed or public limited company as most of thedecision making has been implemented. Implication in the agency theoryseveral points raised in this paper are conflicts in the companies, Ethics,internal audit and dispute between agent and principal. Agency theory comesunder in importance of corporate governance which play prominent role in thebusiness world. Agency theory is vast field hence this paper
“Mainly through
light on agency theory on IAF in Belgian companies
Introduction to the agency theory:-
Agency theory: - definition,
“the agency relationship is a contract under which
one party (the Principal) engages another party (the agent) to perform some
services on their behalf”. (Jensen & Meckling, 1976)
. Jensen and Mecklingprimarily develop agency theory.In broad sense, it is theory which is also investigate the relationship betweenthe investor on equity or shareholder (principal) and owner or manager of theparticular company (agent). The board of directors of the company work asessential key to get to the issue between agent and principal.
3 000602405 Kazim Khan
Agency theory consider in account from long timeline, especially in the area of the business and economics. Study have done on agency theory by differentscholar in various field such as sociology (e.g., Eccles, 1985, White, 1985)accounting (Demski and Feltham, 1978), organizational behaviour (Eisenhardt,1985, 1988; Kosnik, 1987), Marketing (Basu, Lal,Srinivasan, & Staelin, 1985),Economics (Spence and Zeckhauser), political science (Mitnick, 1986), andFinance (Fama, 1980). Corporate industries use different methods to conveyinformation related to their company prospects to their investors. Depending
on the company’s prospects of the investment, type of financing used under
-pricing of initial public offerings, management have full control over whattypes of methods sent out to their investors. (Allen, F.; Faulhaber, G.R. (1989)North-Holland.Downes, D.H.; Heinkel, R. (1982)
Overview of Agency theory
Table 1
Key Idea Principal and Agent relationships ableto reveal organisations risk-bearingcost and informationAnalysing Unit Principal and Agent contractHuman assumption Bounded rationalityRisk averseSelf-interestInformation Assumption Information like purchasablecommodityOrganisational Assumption Information asymmetry between

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