CMA Foundation · Fundamentals of Business Economics and Management · Stewardship Theory and Agency Theory of Management
The central problem that agency theory seeks to explain and solve in a company is:
Agency theory mainly addresses the conflict of interest between owners and managers. Because ownership is separated from control, managers as agents may pursue personal goals rather than maximise shareholder wealth. The theory studies how to align their interests and reduce the resulting losses.
- AConflict of interest between owners and managers arising from separation of ownership and controlCorrect
- BShortage of skilled labour in the market
- CFluctuation in foreign exchange rates
- DDifficulty in classifying costs into fixed and variable
Explanation
Agency theory focuses on the conflict that arises when owners (principals) hire managers (agents) who may pursue their own goals instead of maximising owner wealth. This stems from the separation of ownership and control. The other options are unrelated to the theory's core concern.
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