Agency theory - Quiz | SaliceSalice

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

Stakeholder Theory

Resource Dependence Theory

Transaction Cost Theory

Behavioral Theory

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

Coordination problem

Agency problem

Communication breakdown

Organizational inefficiency

3. What is the primary focus of Agency Theory?

Resolving conflicts between principals and agents

Improving production efficiency

Enhancing organizational culture

Aligning goals between employees and customers

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

Elimination of monitoring costs

Reduced organizational costs

Enhanced trust between principals and agents

Decline in organizational performance

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

Agents overperform to gain incentives

Agents benefit from efforts of others without contributing equally

Agents demand higher salaries without performance guarantees

Principals avoid bearing costs of monitoring

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

Managers

Employees

Customers

Suppliers

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

Monitoring expenses

Advertising costs

Product development costs

Training costs

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

When agents refuse to act on behalf of principals

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

When agents act ethically in all situations

When principals over-monitor agents

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

Increasing autonomy for agents

Adopting informal agreements

Eliminating all performance metrics

Appointing independent boards

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

Costs of organizational expansion

Costs of agent training

Costs of product development

Costs incurred to oversee agent behavior

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

Costs of restructuring the organization

Costs of legal compliance

Costs of acquiring new customers

Costs incurred by principals to align agent interests

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

Performance-based contracts

Verbal agreements

Fixed salary contracts

Open-ended contracts

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

Agents always act in the principal’s best interest

Agents lack decision-making power

Agents and principals have identical goals

Agents may act in their own self-interest

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

Selecting agents based on their potential

A problem arising from excessive monitoring

A situation where agents withhold critical information

Aligning agent and principal goals

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

Overemphasis on organizational culture

Focus on reducing transaction costs

Lack of application in real-world scenarios

Neglect of trust and social relationships

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

By increasing agent autonomy

By eliminating information asymmetry

By ensuring goal alignment

By reducing costs

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

To reduce operational costs

To ensure agents act in the principal’s best interest

To eliminate all risks

To provide autonomy to agents

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

Employees

Managers

Shareholders or owners

Customers

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

Offering performance-based incentives

Increasing monitoring costs

Reducing workload for agents

Eliminating bonuses for agents

20. How can agency problems be mitigated?

Through eliminating agents

Through monitoring and incentives

By increasing employee autonomy

By reducing organizational hierarchy

Question 1 of 20