Question

The agency theory can best be described as

a. the relationship between top management and the board of directors
b. the relationship between the board of directors and shareholders
c. the relationship between top management and the board of directors, and shareholders
d. the relationship between the external auditors and top management

Answer 1

The agency theory is a supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving problems that can exist in agency relationships due to unaligned goals or different aversion levels to risk.