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The problem of agency theory are pricniple and agent.

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The problem of agency theory are pricniple and agent.

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Agency theory is a theory explaining the relationship between principals, such as a shareholders, and agents, such as a company's executives. In this relationship the principal delegates or hires an agent to perform work. The theory attempts to deal with two specific problems: first, that the goals of the principal and agent are not in conflict (agency problem), and second, that the principal and agent reconcile different tolerances for risk.

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Agency theory pertains to the relationship between two parties; the first is the principal (or principals) and the second, the agent (or agents), who are engaged as employees or independent contractors.

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Two forms of agency theory have developed: positivist and principal-agent (Jensen, 1983). Positivist researchers have emphasized governance mechanisms primarily in large corporations.

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