Agency Theory : What Is Agency Theory?
The agency theory is an assumption that explicates a relationship between principals and representatives or agents in the business. Agency theory is conducted to solve problems in the firm or any business activities by mutual understanding between two or more groups or parties when exists any problem from agency relationship due to unaligned goals or varies aversion levels to hazard (Jensen and Meckling, 1976)
In addition, Agency theory discourses problems which rise in order to different goals or desires between the principals and agents. Agency theory build up an agency relationship which occur when an agency hire a representative to fulfil their works by following their rules and regulations. The principal-agent relationship would be entered into by any agreeable and capable parties for the purpose of any legal transaction (Jensen & Meckling, 1976).
In simple term, the principal within the connection generally is a sole separate who appoints an agent or representative to bring out varies services and tasks. The agent most frequently an individual skilful of understanding and eventually carrying out varies tasks or services which are assigned by the principals. Agency theory handles plentiful situation in which one party acts or performances on the behalf of the others. In each situation, the principal is the specific seeking out the specialize agent who provides service, duty and advice of a professional, while agent is doing various tasks as a