Three key ideas in the field of corporate governance and management—Agency Theory, Transaction Cost Economics, and Stewardship Theory—help to explain how organizations are set up and run as well as how conflicts of interest among different stakeholders can be minimized. An outline of each hypothesis is given below:

Theory of Agency:

The interaction between principals and agents in an organization is the main emphasis of agency theory. In this context, the terms "principals" and "agents" refer to the people or organizations that the company's owners or shareholders have recruited to administer the business on their behalf.

Basic Ideas:

Agency Problem : This view acknowledges that there is frequently an interest conflict between principals and agents. Agents might not always behave in the principals' best interests, which causes the "agency problem."
Agency Costs: These expenses are related to reducing the agency issue. They consist of monitoring expenses, bonding fees (such as those for performance bonds), and residual losses (losses brought on by agents acting inadvertently).
Strategies for Mitigation: Strategies including performance-based incentives, monitoring systems, and contractual agreements are used to align the interests of principals and agents.

Economics of Transaction Costs

Fundamental Concept: Transaction Cost Economics (TCE) studies the expenses incurred by carrying out economic transactions both within and between firms. Buying, selling, contracting, and other types of economic exchange are all examples of transactions.

Theorized stewardship

The relationship between principals (owners) and agents (managers) in organizations is viewed more favorably by stewardship theory. It is predicated on the idea that agents have an innate desire to behave in the interests of the principals.

Basic Ideas:

Stewardship Orientation: According to stewardship theorists, managers have a predisposition to act as good stewards who really care about the welfare of the business and its owners.

Monitoring and Control: According to the stewardship theory, overzealous monitoring and control procedures may be detrimental since they may damage trust and intrinsic motivation.

Mitigation Strategies: This theory places less focus on oppressive control measures and more on choosing and developing managers who have a strong stewardship attitude.
These theories offer several viewpoints on the construction and management of firms and offer frameworks for comprehending the dynamics and difficulties present in corporate governance. One or more of these ideas may be more applicable for illuminating and directing managerial activities, depending on the situation and the structure of the organization.