Question

In: Accounting

Agency theory is very prominent in the finance literature. Agency theory deals with the conflict that arises when

Agency theory is very prominent in the finance literature. Agency theory deals with the conflict that arises when a principal hires an agent to manage the principal's firm on her behalf. Which of the following statements are correct? 

Select one:

a. The company's auditor is the agent; the shareholders of the company are the principals

b. The company's bank is the agent; the shareholders of the company are the principals

c. The shareholders of the company are the agents; the Chief Executive Officer is the Principal

d. The Chief Executive Officer is the agent; the shareholders of the company are the principals 

Solutions

Expert Solution

The option (d) is right option.

 

Explanation:

The shareholders of the company are the owners of the company, hence the principal. The principal hires the management to manage the company on their behalf. Hence, the management is the agent headed by the CEO(Chief executive Officer). 

 

So (d) is right option.

So (d) is right option.

Junaid answered 1 year ago
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