As per the Agency Theory of Corporate Governance, which of the following statements are relevant? (a)…
Under the Agency Theory of Corporate Governance (Jensen and Meckling, 1976), the governance relationship is viewed through a materialistic, contract-based lens (a) in which…
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As per the Agency Theory of Corporate Governance, which of the following statements are relevant?
(a) Governance approach is materialistic.
(b) Managers are motivated by the principal's objectives.
(c) Interests of the managers and principals converge.
(d) Behaviour pattern is opportunistic.
(e) Owner's attitude is to avoid risks.
Answer and explanation
Correct answer D
Under the Agency Theory of Corporate Governance (Jensen and Meckling, 1976), the governance relationship is viewed through a materialistic, contract-based lens (a) in which self-interested agents (managers) exhibit opportunistic behavior (d) that diverges from principals' objectives, and principals/owners (or undiversified parties) seek to manage and avoid agency risks (e). Statements (b) and (c) describe Stewardship Theory rather than Agency Theory (a, d, e only).
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UGC NET Commerce