AGENCY THEORY WITH RESPECT TO CORPORATE GOVERNANCE
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Keywords:
Agency Theory, Corporate Governance, Conflict of Interest, Delegation, DirectorAbstract
An inherent tension in corporate governance is between the directors, as managers of the corporation and of the shareholders as owners of the corporation. Through an analysis of “Agency theory” and its impact on practical corporate governance, this paper, elaborates about Agency theory which studies the problems and solutions linked to delegation of tasks from principals to agents in the context of conflicting interests between the parties. The primary agency relationships in business are with regard to director, management, shareholders, which are intriguingly in conflict with regard to interests pertaining. This has direct implication on business ethics and corporate governance. The first part of the paper deals with introduction and evolution of Agency Theory and explains mediating hierarchy approach is better as alternative. The second part of the paper talks about the impact of agency theory on risk and perceptions. The third part of the paper promotes the relationship between ethics and greed. Last but not the least, the paper has addressed the consequences related to Corporate Governance and sought to investigate the validity of the criticism against Agency Theory put forth.
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