CMA Foundation · Fundamentals of Business Economics and Management · Stewardship Theory and Agency Theory of Management
Shareholders of a firm cannot fully observe the day-to-day effort and decisions of the CEO, who knows much more about the business than they do. This feature, central to agency theory, is known as:
This feature is information asymmetry. The CEO, as agent, knows more about the business and his own actions than shareholders do, so the principals cannot easily verify effort or decisions. This gap makes monitoring costly and gives room for the agent to act in self-interest.
- AInformation asymmetryCorrect
- BEconomies of scale
- CSpan of control
- DUnity of command
Explanation
When the agent has more or better information than the principal, the principal cannot easily verify the agent's actions. This is information asymmetry and it makes monitoring difficult and costly. Span of control and unity of command are organisation principles, not agency concepts.
Did you get it right without looking?
One question tells you little. A timed set on Stewardship Theory and Agency Theory of Management shows your real accuracy, how long you take and where you lose marks.
More Stewardship Theory and Agency Theory of Management questions
- In agency theory, the sum of monitoring expenditures by the principal, bonding expenditures by the agent and the residual loss is commonly c…
- Which statement best describes how stewardship theory views a manager's motivation, in contrast to agency theory?
- Which of the following is a commonly cited limitation of stewardship theory?
- In agency theory, the owners who hire managers to run the firm on their behalf are called the:
- A company's board chair is also its CEO, and the board has few outside directors. Which statement best explains how stewardship theory would…
- The managing director of a listed Indian company approves an expensive corporate jet for personal comfort, although it adds nothing to share…