Agency theory - Quiz | SaliceSalice

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

Principals avoid bearing costs of monitoring

Agents demand higher salaries without performance guarantees

Agents benefit from efforts of others without contributing equally

Agents overperform to gain incentives

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

By increasing agent autonomy

By reducing costs

By eliminating information asymmetry

By ensuring goal alignment

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

Adopting informal agreements

Increasing autonomy for agents

Appointing independent boards

Eliminating all performance metrics

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

Elimination of monitoring costs

Decline in organizational performance

Enhanced trust between principals and agents

Reduced organizational costs

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

Reducing workload for agents

Offering performance-based incentives

Eliminating bonuses for agents

Increasing monitoring costs

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

Customers

Managers

Suppliers

Employees

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

Advertising costs

Product development costs

Monitoring expenses

Training costs

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

Transaction Cost Theory

Resource Dependence Theory

Behavioral Theory

Stakeholder Theory

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

Performance-based contracts

Open-ended contracts

Fixed salary contracts

Verbal agreements

10. How can agency problems be mitigated?

Through monitoring and incentives

By reducing organizational hierarchy

By increasing employee autonomy

Through eliminating agents

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

When principals over-monitor agents

When agents act ethically in all situations

When agents refuse to act on behalf of principals

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

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

Customers

Shareholders or owners

Employees

Managers

13. What is the primary focus of Agency Theory?

Enhancing organizational culture

Improving production efficiency

Aligning goals between employees and customers

Resolving conflicts between principals and agents

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

Agents may act in their own self-interest

Agents always act in the principal’s best interest

Agents lack decision-making power

Agents and principals have identical goals

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

Neglect of trust and social relationships

Overemphasis on organizational culture

Lack of application in real-world scenarios

Focus on reducing transaction costs

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

Aligning agent and principal goals

A problem arising from excessive monitoring

A situation where agents withhold critical information

Selecting agents based on their potential

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

To ensure agents act in the principal’s best interest

To provide autonomy to agents

To eliminate all risks

To reduce operational costs

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

Costs incurred by principals to align agent interests

Costs of acquiring new customers

Costs of restructuring the organization

Costs of legal compliance

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

Costs of agent training

Costs of product development

Costs of organizational expansion

Costs incurred to oversee agent behavior

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

Communication breakdown

Organizational inefficiency

Agency problem

Coordination problem

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