Agency theory - Quiz | SaliceSalice

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

Principals avoid bearing costs of monitoring

Agents overperform to gain incentives

Agents benefit from efforts of others without contributing equally

Agents demand higher salaries without performance guarantees

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

Eliminating bonuses for agents

Increasing monitoring costs

Reducing workload for agents

Offering performance-based incentives

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

Customers

Managers

Suppliers

Employees

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

Costs of legal compliance

Costs of restructuring the organization

Costs incurred by principals to align agent interests

Costs of acquiring new customers

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

Managers

Employees

Shareholders or owners

Customers

6. 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

7. How can agency problems be mitigated?

Through eliminating agents

By increasing employee autonomy

By reducing organizational hierarchy

Through monitoring and incentives

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

A problem arising from excessive monitoring

A situation where agents withhold critical information

Aligning agent and principal goals

Selecting agents based on their potential

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

Communication breakdown

Organizational inefficiency

Coordination problem

Agency problem

10. 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

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

Verbal agreements

Open-ended contracts

Performance-based contracts

Fixed salary contracts

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

Appointing independent boards

Eliminating all performance metrics

Adopting informal agreements

Increasing autonomy for agents

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

Decline in organizational performance

Reduced organizational costs

Elimination of monitoring costs

Enhanced trust between principals and agents

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

Resource Dependence Theory

Stakeholder Theory

Transaction Cost Theory

Behavioral Theory

15. 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

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

Overemphasis on organizational culture

Lack of application in real-world scenarios

Neglect of trust and social relationships

Focus on reducing transaction costs

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

By ensuring goal alignment

By eliminating information asymmetry

By increasing agent autonomy

By reducing costs

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

Monitoring expenses

Advertising costs

Training costs

Product development costs

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

Agents always act in the principal’s best interest

Agents and principals have identical goals

Agents lack decision-making power

Agents may act in their own self-interest

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