AAA – L3 – SA – Q2.1 – Agency Theory

Directors as agents in agency theory.

Question

In the context of agency theory, the directors of a company are the agents of:

A The auditors

B The audit committee

C The institutional shareholders

D All shareholders

Answer

Explanation:
The directors of a company are supposed to act in the interests of those who own the company, i.e., all the shareholders. In agency theory, directors are agents appointed to manage the company on behalf of the shareholders (principals), not auditors, the audit committee, or only institutional shareholders. Thus, D is the correct answer.

Tags: Agency Theory, Corporate Governance, Directors, ICAG, Shareholders
Level: Level 3

Topic: The regulatory environment

Uploader: Salamat Hamid