Behavioral Agency Theory

Behavioral Agency Theory explores how the behavior and perceptions of managers, as agents of a company's owners (principals), influence decision-making. It recognizes that managers may sometimes act in their own interests rather than maximizing shareholder value, especially when their goals differ or they have different risk preferences. The theory emphasizes understanding these behavioral factors, such as managers’ motivations and biases, to better align their actions with shareholders’ interests. It highlights that addressing behavioral elements is crucial for effective corporate governance and ensuring that managerial decisions serve the company's overall objectives.