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The intent of this article was to clarify some of the confusion surrounding agency theory in addition to leading organizational scholars to use agency theory in their studies of principal-agent issues facing firms. Eisenhardt reviews agency theory, its contributions to organizational theory, and the development of testable propositions.
Specifically, an agency theory is directed at widespread agency relationship, in which one party, known as the principal, delegates work to the other party, known as the agent. The fundamental aspect of the agency theory is the idea that principals and agents are engaged in cooperative behavior, but have differing goals and attitudes toward risk. Furthermore, agency theories are concerned with resolving problems that can occur in agency relationships. ... The focus of this theory is based upon human assumptions, organizations, and information systems and how these variables interact to determine the most efficient relationship governing the principals and agents.
Two extreme positions on agency theory have developed in its history. ... The positivist agency view is most concerned with describing the governance mechanisms that solve the agency problem.
Approximate Word count = 818
Approximate Pages = 3.3
(250 words per page double spaced)
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