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Identify and briefly explain the three main forms of agency relationship in a firm.

      

Identify and briefly explain the three main forms of agency relationship in a firm.

  

Answers


Martin
Agency relationships

Shareholders and management
In this case the shareholders act as the principal while the management acts as their
agents. The shareholders provide equity capital while the managers provide managerial
skill.

Shareholders and creditors

In this case the shareholders act as the agent and the creditors act as the principal.
The relationship arises from the fact that though the creditors provide debt capital to
the various operations of the firm, they do not make decisions.
Shareholders and the government

Any shareholder will rely on the establishment existing in a specific country in
undertaking any form of business and reliance will be made on the government services.
In this case the government expects the owners to reciprocate by avoiding engagement
in activities which would be in conflict with societal expectations. The government will
act as the principal and the shareholders will act as the agent who is expected to
consider the government interests.
marto answered the question on February 11, 2019 at 11:10


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