What is 'agency theory'?
Agency Theory is the theory that describes the relationship between two parties in either the corporate or political world. In business, we say that employees of the company act as "agents" of owners, or shareholders, or the company. Often, we talk about an "agency problem" when the interests of employees are not the same as the shareholders. For example, executives paying themselves inflated salaries and large bonuses, while their company fails and the stock price plummets.