Agency theory is an important part of PAT. It has its origins in the information economics
literature in which information is placed into an explicit decision-making setting. That is greater information leads to better decisions. However, agency theory extends traditional information economics in that it recognises that several forces are at play in organisations that affect how it operates. For example, the notion of information asymmetry is a problem that impacts on resource
allocation issues. There is information asymmetry when some parties (managers) have greater
information than others (for example, investors). Therefore will manger disclose this additional
information to the “market”? Agency theorists believe there has to be incentives for managers to make additional (voluntary) disclosures.