Agency theory - Quiz | SaliceSalice

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

Agents overperform to gain incentives

Principals avoid bearing costs of monitoring

Agents demand higher salaries without performance guarantees

Agents benefit from efforts of others without contributing equally

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

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

When agents act ethically in all situations

When principals over-monitor agents

When agents refuse to act on behalf of principals

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

By increasing agent autonomy

By eliminating information asymmetry

By ensuring goal alignment

By reducing costs

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

Adopting informal agreements

Appointing independent boards

Eliminating all performance metrics

Increasing autonomy for agents

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

To eliminate all risks

To provide autonomy to agents

To reduce operational costs

To ensure agents act in the principal’s best interest

6. What is the primary focus of Agency Theory?

Enhancing organizational culture

Aligning goals between employees and customers

Improving production efficiency

Resolving conflicts between principals and agents

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

Costs of product development

Costs of organizational expansion

Costs incurred to oversee agent behavior

Costs of agent training

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

Agency problem

Coordination problem

Organizational inefficiency

Communication breakdown

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

Agents and principals have identical goals

Agents may act in their own self-interest

Agents lack decision-making power

Agents always act in the principal’s best interest

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

Advertising costs

Monitoring expenses

Training costs

Product development costs

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

Eliminating bonuses for agents

Reducing workload for agents

Increasing monitoring costs

Offering performance-based incentives

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

Customers

Shareholders or owners

Employees

Managers

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

Stakeholder Theory

Behavioral Theory

Resource Dependence Theory

Transaction Cost Theory

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

Enhanced trust between principals and agents

Reduced organizational costs

Elimination of monitoring costs

Decline in organizational performance

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

Fixed salary contracts

Verbal agreements

Open-ended contracts

Performance-based contracts

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

Customers

Employees

Managers

Suppliers

17. How can agency problems be mitigated?

By reducing organizational hierarchy

Through eliminating agents

Through monitoring and incentives

By increasing employee autonomy

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

Costs of restructuring the organization

Costs incurred by principals to align agent interests

Costs of acquiring new customers

Costs of legal compliance

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

Neglect of trust and social relationships

Focus on reducing transaction costs

Overemphasis on organizational culture

Lack of application in real-world scenarios

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

A situation where agents withhold critical information

Selecting agents based on their potential

A problem arising from excessive monitoring

Aligning agent and principal goals

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