Agency theory

Corporate finance.

Agency theory states that company directors and managers act on behalf of shareholders as their agents.

An important consequence of agency theory is potential agency costs.

Agency costs can arise when the interests of directors and shareholders are not well aligned, and the directors act in their own personal interests, and not in the best interests of the shareholders. Any agency costs represent a cost to the shareholders and a loss of value for the shareholders.

See also

• Agency
• Agency risk
• Agent
• Directors' responsibilities statement