Agency Theory is a concept in economics and management that explores the relationship between principals and agents. In this context, the principal is someone who delegates authority, such as a shareholder, while the agent is the individual who acts on behalf of the principal, like a company executive. The theory examines how to align the interests of both parties to minimize conflicts and ensure that the agent acts in the best interest of the principal. A key issue in Agency Theory is the potential for moral hazard, where the agent may prioritize personal gain over the principal's objectives. To mitigate this risk, various mechanisms can be implemented, such as performance-based incentives or monitoring systems. These strategies aim to create a balance that encourages agents to act in ways that benefit the principals, ultimately leading to better organizational performance.