Agency theory - Quiz | SaliceSalice

1. What are “bonding costs” in Agency Theory?

Costs incurred by principals to align agent interests

Costs of restructuring the organization

Costs of acquiring new customers

Costs of legal compliance

2. Which problem arises when agents pursue their own interests over those of the principals?

Communication breakdown

Organizational inefficiency

Coordination problem

Agency problem

3. Which of the following is a criticism of Agency Theory?

Lack of application in real-world scenarios

Neglect of trust and social relationships

Overemphasis on organizational culture

Focus on reducing transaction costs

4. Who are the “principals” in Agency Theory?

Customers

Managers

Employees

Shareholders or owners

5. What is the key assumption about agents in Agency Theory?

Agents lack decision-making power

Agents may act in their own self-interest

Agents always act in the principal’s best interest

Agents and principals have identical goals

6. What is the primary focus of Agency Theory?

Resolving conflicts between principals and agents

Enhancing organizational culture

Improving production efficiency

Aligning goals between employees and customers

7. Which of the following is an example of an agency cost?

Training costs

Advertising costs

Monitoring expenses

Product development costs

8. What is the “free-rider problem” in Agency Theory?

Agents demand higher salaries without performance guarantees

Principals avoid bearing costs of monitoring

Agents benefit from efforts of others without contributing equally

Agents overperform to gain incentives

9. Which governance mechanism is commonly used to reduce agency problems?

Adopting informal agreements

Increasing autonomy for agents

Appointing independent boards

Eliminating all performance metrics

10. How does performance appraisal help in resolving agency problems?

By eliminating information asymmetry

By ensuring goal alignment

By increasing agent autonomy

By reducing costs

11. How can agency problems be mitigated?

By increasing employee autonomy

Through monitoring and incentives

By reducing organizational hierarchy

Through eliminating agents

12. Who are the “agents” in the context of Agency Theory?

Employees

Suppliers

Managers

Customers

13. What is “moral hazard” in Agency Theory?

When principals over-monitor agents

When agents act ethically in all situations

When agents take risks because they do not bear the full consequences

When agents refuse to act on behalf of principals

14. Which type of contract is typically used to address agency problems?

Performance-based contracts

Open-ended contracts

Verbal agreements

Fixed salary contracts

15. Which of the following is an example of aligning agent and principal goals?

Offering performance-based incentives

Reducing workload for agents

Eliminating bonuses for agents

Increasing monitoring costs

16. In Agency Theory, “monitoring costs” refer to:

Costs incurred to oversee agent behavior

Costs of organizational expansion

Costs of agent training

Costs of product development

17. Which of the following is a consequence of unresolved agency problems?

Decline in organizational performance

Reduced organizational costs

Enhanced trust between principals and agents

Elimination of monitoring costs

18. What is “adverse selection” in Agency Theory?

Selecting agents based on their potential

A problem arising from excessive monitoring

Aligning agent and principal goals

A situation where agents withhold critical information

19. What is the primary purpose of monitoring in Agency Theory?

To ensure agents act in the principal’s best interest

To reduce operational costs

To provide autonomy to agents

To eliminate all risks

20. Which theory often complements Agency Theory in understanding organizational dynamics?

Behavioral Theory

Transaction Cost Theory

Stakeholder Theory

Resource Dependence Theory

Question 1 of 20