Agency theory reading report

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Definition of Agency Theory

Agency theory is a branch of economics that gives the relationships between the principals (owners) and the agents (managers).

The agency theory presumes that the agent will make decisions that enhance the shareholders (owners) value. But, sometimes the agents make decisions that promote their own interest at the expense of the shareholders (owners).

Ethics in Finance

Ethics is doing what is good or bad, what is right or wrong.

It is the standard of conduct or moral behavior

Unethical behavior by business organizations has led to bankruptcies.

The managers and employees should always strive to behave ethically to safeguard the shareholders investments and the reputation of the business organization.

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