Agency theory - Quiz | SaliceSalice

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

Organizational inefficiency

Coordination problem

Agency problem

Communication breakdown

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

Agents overperform to gain incentives

Agents demand higher salaries without performance guarantees

Agents benefit from efforts of others without contributing equally

Principals avoid bearing costs of monitoring

3. 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

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

Fixed salary contracts

Verbal agreements

Open-ended contracts

Performance-based contracts

5. 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

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

Enhanced trust between principals and agents

Reduced organizational costs

Decline in organizational performance

Elimination of monitoring costs

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

Adopting informal agreements

Eliminating all performance metrics

Increasing autonomy for agents

Appointing independent boards

8. How can agency problems be mitigated?

Through monitoring and incentives

By increasing employee autonomy

Through eliminating agents

By reducing organizational hierarchy

9. 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

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

Agents lack decision-making power

Agents and principals have identical goals

Agents always act in the principal’s best interest

Agents may act in their own self-interest

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

Stakeholder Theory

Transaction Cost Theory

Resource Dependence Theory

Behavioral Theory

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

A problem arising from excessive monitoring

Selecting agents based on their potential

Aligning agent and principal goals

A situation where agents withhold critical information

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

Suppliers

Customers

Employees

Managers

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

By reducing costs

By increasing agent autonomy

By eliminating information asymmetry

By ensuring goal alignment

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. Who are the “principals” in Agency Theory?

Shareholders or owners

Managers

Employees

Customers

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

To provide autonomy to agents

To eliminate all risks

To ensure agents act in the principal’s best interest

To reduce operational costs

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

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

When principals over-monitor agents

When agents act ethically in all situations

When agents refuse to act on behalf of principals

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

Focus on reducing transaction costs

Neglect of trust and social relationships

Overemphasis on organizational culture

Lack of application in real-world scenarios

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

Monitoring expenses

Product development costs

Training costs

Advertising costs

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