Role of the agency theory in implementing managements control

Abstract

The major purpose of this article is to analyze the role of the "Agency Theory" in implementing effective control mechanisms. In effect, various control paradigms under the following situations are elaborated: a) When the agent's control system is merely based on the output under the condition of uncertainty; b) When the control mechanism is based on the output, and information about agent's action or effort; c) When the agent's monitoring control is based on the output, agent's action and additional variables. It is concluded that agency theory posits different organizational, behavioral, economical and controlling roles, and it is a potent framework which can be extricated in promulgation of the management control systems. Furthermore, the implementation of a control mechanism depends on the amount and contents of the public and/ or private information that exist in the domain of the managerial accounting system. The disseminated information and the concurrent variables surrounding the agency relations are also vital elements in creating any control system. Finally, the optimal control mechanism under each preceding conditions are revealed