What agency theory advantage and disadvantage?

The agency theory advantage lies in its ability to clarify the relationship between principals (owners) and agents (managers), helping to align their interests through performance-based incentives and contracts. This alignment can enhance efficiency and decision-making in organizations. However, a key disadvantage is the potential for conflicts of interest, where agents may prioritize personal gains over the principals' objectives, leading to suboptimal outcomes. Additionally, monitoring and enforcement costs can be significant, reducing overall effectiveness.