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TERM OF THE DAY

Agency Theory 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. The most common agency relationship in finance occurs between shareholders (principal) and company executives (agents).

Breaking it Down: Agency theory addresses problems that arise due to differences between the goals or desires between the principal and agent. This situation may occur because the principal isn’t aware of... Read More