Agency theory has been used by scholars in accounting, economics, Finance, Marketing, Political Science, organizational behaviour and Socialogy. That is an important theory. Most public corporations are large enough that it is neither efficient nor feasible for the owners of the firm to actually manage the business. Under such circumstances, the owners of the corporation must contract with an agent to make both short-term and long-term operating, financial, and strategic decisions. It can be expected that, at many times, the agent’s priorities and objectives may be different from those of the owners. An agent may likely pursue his or her own interests if such a divergence in priorities and objectives develops since the agent exercises control over the firm’s activities. In other words Agency theory is directed at the ubiquitous agency relationship, in which one party (the principal), delegates work to an other (the agent) who performs that work. Most frequently, agency theory has been applied to organizational phenomena such as compensation, acquisition and diversification strategies., board relationships, ownership and financing structures, vertical integration, and INNOVATION. Agency theory has developed along two lines positivist and principal.
Positivist researchers have focused on identifying situations which the principal and agent are likely to have conflicting goals and then describing the governance mechanizms that limit agents self serving behaviour. Then they focus focused almost exclusively on the special case of the principal agent relationship between owners and managers of large, public corporations. will be continue …..
