Agency Theory Quiz

What does agency theory primarily explain?

• The relationship between shareholders and customers

• The relationship between employees and employers

• The relationship between managers and their teams

• The relationship between principals and agents

What motivates both principals and agents according to agency theory?

• Loyalty

• Altruism

• Teamwork

• Self-interest

What is a potential conflict in the relationship between shareholders and management?

• Management always maximizes shareholder value

• Management may pursue personal growth over shareholder profit

• Shareholders have complete control over management decisions

• Management is not accountable to shareholders

In the context of agency theory, who are considered the principals?

• Managers

• Employees

• Shareholders

• Clients

What is one example of agency problems?

• Clients always receiving the best investment advice

• Managers expanding a company for personal reputation

• Shareholders always agree with management

• Employees working harder when unsupervised

What is meant by information asymmetry in agency theory?

• Agents know more about day-to-day operations than principals

• Both parties have equal information

• Principals know more than agents

• Information is shared equally

What is one solution to agency problems?

• Incentives linked to principals' goals

• Complete independence of agents

• Lack of monitoring

• No contracts between parties

What might motivate a financial advisor to recommend certain investments?

• Market trends

• Long-term client relationships

• Higher fees for themselves

• The best interest of the client

What is a common behavior of employees when unsupervised?

• Greater accountability

• Increased productivity

• Shirking

• Enhanced teamwork

What is a potential issue with politicians acting as agents?

• They are fully transparent

• They may act in self-interest

• They always serve the public interest

• They have no power over citizens