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CMA Foundation · Fundamentals of Business Economics and Management · Stewardship Theory and Agency Theory of Management

In agency theory, the owners who hire managers to run the firm on their behalf are called the:

Owners or shareholders are called principals in agency theory. They delegate decision-making authority to managers, who are the agents. The theory studies how conflicts of interest arise between these two parties and how they can be controlled or reduced.

  1. AAgents
  2. BPrincipalsCorrect
  3. CStewards
  4. DIntermediaries

Explanation

Agency theory models a relationship in which the principal (the owner or shareholder) delegates decision-making authority to an agent (the manager). Agents are the managers who act on the owners' behalf. Stewards belong to stewardship theory, not the agency relationship.

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