Agency theory is a fundamental concept in corporate governance that examines the relationships between the different actors within a company.

Shareholders are the legitimate owners of a company, but many of them are individual investors who hold only a small portion of a company’s shares. Shareholders may face issues of information asymmetry, as they do not always have access to the same information as the company’s managers. Managers may therefore not always act in the shareholders’ best interests. This is why shareholders delegate governance power to directors, who are expected to protect shareholders’ interests.