Information asymmetry, moral hazard and agency problem - Theoretical overview and practical implications

Polina Stolbova

Bachelor's thesis

Abstract:

The Thesis is focused on an agency problem Information asymmetry, moral hazard, and their relationship to each other. The theoretical part explains these concepts and what role they play in building employee relationships and business implementation. Firstly, it provides a theoretical basis for the history of occurrence and scientific discussion on the concept of the agency problem, information asymmetry and moral hazard. Further options are provided for the possibility of solving the principal-agent problem. In the first part of the practical part, the Enron case is shown in order to make it clear how important it is to reckon with agency problem, information asymmetry, and moral hazard, and what kind of collapse and losses ignoring these aspects can lead to. To do this, their fraudulent financial schemes are provided and based on their data. Further, the conclusion is made about the consequences of the collapse of Enron and suggests ways to solve the agency problem that could help in the company's situation. In the next part of the practical part, the possibilities for solving the principal-agent problem are applied at the branding agency. After conducting a study of the company and its employees, critical problems were identified. The data on the difference in the percentage of employees who are willing to distort information before and after the introduction of methods for solving the agency problem is presented. The significance of the results is assessed using the Wilcoxon Test. In conclusion, the results of the analysis are described.

Keywords

agency problem, moral hazard, information asymmetry, principal, agent, opportunistic behavior, managers, shareholders, Enron, control

Language used: English

Date on which the thesis was submitted / produced: 15. 3. 2022

Thesis defence

• Supervisor: Ing. Pavel Srbek, Ph.D.

Czech University of Life Sciences Prague

Faculty of Economics and Management

Bachelor programme / field:
Economics and Management / Economics and Management