Essay --

Many risks come along with big bonusesThe burst of the lodging bubble in the US caused the collapse of financial institutions and the bailed go forth of banks by governmental institutions resulting in the 2008 financial crisis. One of these banks was the Royal Bank of Scotland who ran out of money. Bankers were blamed for acting out of self-interest and making risky decisions. These failures pull up stakes be analysed in this essay by giving answer to the following question How did agency theory contributed to the 2007 financial crisis?Introductory, agency theory discusses the relationship in which one party, the principal, delegates work to another, the agent (Eisenhardt, 1989). The core idea croupe agency theory is to through contracting align the interest of shareholders (principal) with that of the managers (agents) in order to maximize shareholders value. Thus, the decision-making is being separated from the party who bears the risk therefore, problems shadower arise. First ly, the principal cannot verify whether the agent has be ached appropriately (the agent and principal have partly di...