Application of the forgotten effects model to the agency theory

Abstract

During the financial crisis, interest problems between shareholders (principal) and managers (agent) have raised due to the evidence of the dishonest behaviour of the Chief Executive Officer (CEO). Based on the agency theory, we use the model of forgotten effects in order to identify different solutions for each kind of agency problems. The aim of this study is to reduce agency problems and facilitate the companies’ success, providing useful information to improve the decision-making process in management.