The Agency Theory: Principal-Agent Relationship



Corporations today are based on, ‘Agency Theory’ (a branch of organizational behavior) wherein the behavior) wherein the owners of funds (alias principals invest their money in a company that it managed by altogether different group of people called directors and managers (alias agents) This agency relationship between shareholders and directors is based on the premise of trust; shareholders lend their money to directors under trust that the latter shall deploy the money in a manner that would maximize shareholders interests.

This theory assumes agent management will not always take decisions that will value. maximize long-term ownership value. Managers often take decisions, which further their own interest but are detrimental to the interest of the organization. This theory states that agents/managers/employees can not be trusted to act in the best interests of the shareholders and should be monitored and controlled to ensure that they follow the set policies, procedures and plans of the corporation


Agency Theory is defined by Chartered Institute of Management Accountants as ‘Hypothesis that attempt to explain elements of organizational behaviour through an understanding of the relationship between principals (shareholders) and agents (directors and managers). A-conflict may exist between the actions undertaken by agents in furtherance of their own self-interest and those required to promote the interest principals.


The following two tabs change content below.
We, at, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to [email protected]
  1. ciprofloxacin 500mg antibiotics cost ciprofloxacin cost walmart ciprofloxacin coupon [url=[Link deleted]ciprofloxacin online[/url] [Link deleted]

  2. chloroquine 150 mg 2 weeks ago

    Hello it’s me, I am also visiting this web site daily, this web site is genuinely
    good and the people are actually sharing fastidious thoughts. [Link deleted]

Leave a reply

Your email address will not be published. Required fields are marked *


* is aimed at revolutionising Bachelors in Management Studies education, also known as BMS for students appearing for BMS exams across all states of India. We provide free study material, 100s of tutorials with worked examples, past papers, tips, tricks for BMS exams, we are creating a digital learning library.

Disclaimer: We are not affiliated with any university or government body in anyway.

©2020 BMS - Bachelor of Management Studies Community 

A Management Paradise Venture

Ask Us On WhatsApp

Log in with your credentials


Forgot your details?


Create Account