The link between the principal and the agent is examined by agency theory, a key idea in the study of economics, finance, and organizational behavior. A principle-agent relationship is established when the principal gives the agent the power to decide on their behalf. The Agency Theory, its fundamental ideas, and its applications in many circumstances are all described in this abstract. Conflicts of interest often occur in the principal-agent relationship as a result of the principal and agent's opposing motives and aims. While the agent may have various goals, such as maximizing personal advantages or avoiding obligations, the principal strives to maximize their interests. These conflicts may result in agency issues, which can have a negative impact on organizational performance, moral hazard creation, and poor decision-making Agency Theory's theoretical foundation may help us comprehend and resolve these issues. Designing ideal contracts and incentive programmers that balance the interests of the two parties is the main emphasis. The principal may encourage the agent to operate in the principle's best interests by matching incentives, thereby improving organizational performance and efficiency.We examine the key ideas of agency theory in this abstract, including information asymmetry, risk-sharing systems, and the function of monitoring and control mechanisms. Additionally, we go through how Agency Theory is used in a number of contexts, such as corporate governance, CEO remuneration, financial contracting, and public sector management.
