Agency Theory

Agency Theory is a concept in economics and management that examines the relationship between principals (owners or shareholders) and agents (managers or executives) in a business. It explores how the interests of these two parties can differ, leading to potential conflicts. For instance, while owners may prioritize profit maximization, managers might focus on personal gains or job security. The theory highlights the importance of aligning incentives and ensuring accountability to minimize these conflicts, ultimately promoting better decision-making and performance within organizations.