What are the types of agency theory?

The types of agency theory can be positivist and principal agency theory: Positivist studies have concentrated on defining scenarios in which the principal and agent are likely to have divergent aims and then detailing the governance frameworks that restrict the agent’s self-serving or self-interest conduct.

What are the implications of the agency theory?

The agency theory analyses the issues and solutions surrounding task delegation from principals to agents. The principals appoint the agents to perform specific duties. Agents are given authority to complete the duties or work assigned. The issues arise because of conflicting interests and information asymmetry between the principal and agent.

What is the relationship between agency theory and corporate governance?

Agency theory in corporate governance is an extension of the agency theory discussed above. It relates to a specific type of agency relationship that exists between the shareholders and directors/management of a company. The shareholders, true owners of the corporation, as principals, elect the executives to act and take decisions on their behalf.

How does the agency theory explain relationships in business organizations?

Agency theory examines the relationship between the agents and principals in the business. In an agency relationship, two parties exist – the agent and principal, whereby the former acts and takes decisions on behalf of the latter.